American Multinationals and Japan: The Political Economy of Japanese Capital Controls, 1899-1980 (Harvard East Asian Monographs) [Illustrated] 0674026306, 9780674026308

Citation preview

H A R V A R D EAST A S I A N M O N O G R A P H S

154

American Multinationals and Japan The Political Economy of Japanese Capital Controls, 1899-1980

Subseries on the History of Japanese Business and Industry

Japan's rise from the destruction and bitter defeat of World War I1 to its present eminence in world business and industry is perhaps the most striking development in recent world history. This did not occur in a vacuum. It was linked organically to at least a century of prior growth and transformation. To illuminate this growth a new kind of scholarship on Japan is needed: historical study in the context of a company or indmtry of the interrelations among entrepreneurs, managers, engineers, workers, stockholders, bankers, and bureaucrats, and of the institutions and policies they created. Only in such a context can the contribution of particular factors be weighed and understood. It is to promote and encourage such scholarship that this series is established, supported by the Reischauer Institute of Japanese Studies and published by the Council on East Asian Studies at Harvard. Albert M. Craig

American Multinationds and Japan The Political Economy of Japanese Capital Controls, 1899-1980

MARK MASON

P U B L I S H E D BY C O U N C I L O N EAST ASIAN STUDIES H A R V A R D UNIVERSITY

Distributed by Hamard University Press Cambridge, Massachusetts, and London 1992

O Copyright 1992 by The President and Fellows of Harvard College

Printed in the United States of America The Council on East Asian Studies at Harvard University publishes a monograph series and, through the Fairbank Center for East Asian Research and the Reischauer Institute of Japanese Studies, administers research projects designed to further scholarly understanding of China, Japan, Korea, Vietnam, Inner Asia, and adjacent areas. Library of Congress Cataloging-in-Publication Data Mason, Mark, 1955American multinationals and Japan : the political economy of Japanese capital controls, 1899-1980 / Mark Mason. p. cm. - (Harvard East Asian monographs ; 154. Subseries on the history of Japanese business and industry) Includes bibliographical references and index. ISBN 0-674-02630-6 1. Investments, American-Japan. 2. Corporations, AmericanJapan-Case Studies. 3. International business enterprises-Japan. 4. Japan-Commerical policy. I. Title. 11. Series: Harvard East Asian monographs ; 154. III. Series: Harvard East Asian monographs. Subseries on the history of Japanese business and industry. HG5772.M34 1992 338.8'8973052-dc20 92-9934 ClP

To my parents

Acknowledgments

It is truly a pleasure to acknowledge the contributions of numerous scholars who provided counsel and support throughout the successive stages involved in the preparation of this manuscript. At Harvard, I wish to thank in particular Professor Albert Craig of the History Department, my advisor in the doctoral program at the Graduate School of Arts and Sciences, together with Professors Alfred Chandler of the Graduate School of Business Administration, Henry Rosovsky of the Economics Department, and Ezra Vogel of the Sociology Department. I owe an especially great debt of gratitude to Professor Dennis Encarnation of the Graduate School of Business Administration, whose professional and personal generosity have been enormous. Elsewhere, Professors Chalmers Johnson, Richard Samuels, Udagawa Masaru, Mira Wilkins, Kozo Yamamura, Yamazaki Hiroaki and Yui Tsunehiko deserve special thanks for their consideration.

vii

Acknowledgments

Countless individuals in business, government and elsewhere also contributed greatly to the completion of this work. I would like to thank in articular James Abegglen, James Adachi, Richard Agnich, Amaya Naohiro, And6 Kaoru, Ayukawa Yaichi, Robert Baker, Richard Bechtold, James Birkenstock, Daniel Blake, Barton Brown, Kenneth Brown, William Brown, J. Fred Bucy, John Callander, John Christensen, William Conner, William Diehl, Sven Dithmer, William Dizer, Dagauchi Masato, Edo Hideo, Milfred Ettinger, Joseph Emory, Richard Finn, Darlene Flaherty, Fujiyama Kakuichiro, Robert Galvin, Laurence Goldfarb, Donald Gorham, Gota Tatsuro, Gota Takeshi, Bernard Grossmann, Hama S h a t a r ~Richard Heimlich, Hiramatsu Morihiko, Richard Hodgson, Lester Hogan, Inuta Akira, Misha Kadich, Kashiwagi Yiisuke, Katsube Toshio, Kaya Masao, Kiuchi Nobutane, Komura Tsuneo, Stephen Levy, A1 Loening, John Loughran, Sally Merryman, Anne Milbrooke, Philip Mooney, Morishita Keizb, Frank Moss, Nagata Takashi, Nakai Sei, Nakaya Ryiihei, Nakayama Takao, George Needham, Norman Neureiter, Roger Nichols, Robert Noyce, Theodore Peightol, Robert Perkins, Max Post, Hans Pringsheim, Richard Rabinowitz, Robert Reilly, Edwin Reischauer, James Roche, William Roche, Edward Rogers, Sakurai Makoto, Will Scott, Mark Shepherd, Shindii Isao, Albert Sieg, Mary Smith, Suzuki Kanemitsu, Takahashi Korenobu, Takanashi Nisaburii, Takasusuki Toshio, Takenaka Homare, Tokuoka Takaki, Philip Trezise, Ushijima Hiromi, William van Zandt, Cantwell Walsh, Watanabe Takeshi, William Weisz, Elmer Welty, William Wilkinson, George Wise, Yamaguchi Emi, Yanase Jira, and Yuasa Kybz6. For their research assistance in Japan, the United States and Europe, I wish to acknowledge the excellent work of Aoki Nobuko, Hari Avula, Kaji Katsuhiko, Kat6 Hidenaka, Nakazawa Hideko, Jerome Del Pino, Rachel West, Suzuki Yoshimi, and Yoshimoto Utsuru. Numerous institutions also offered valuable assistance. The following organizations provided significant financial support during one or more stages of the project: the Graduate School of Arts and Sciences, Harvard University; the Harvard Academy for International

...

Vlll

Acknowledgments

and Area Studies, Harvard Univeristy; the Japan Foundation; the Edward A. Kilroy Research Fund at the School of Organization and Management, Yale University; and the United States Department of Education. In addition, the following institutions provided other types of assistance without which this history could not have been told: the American Chamber of Commerce in Japan; American Telephone & Telegraph; the British Chamber of Commerce in Japan; the Center for International Affairs, Harvard University; La Chambre de Commerce et D'Industrie Fran~aisedu Japon; Coca-Cola; Deutsche Industrie und Handelskammer in Japan; Ford Motor Company; General Motors; Hagley Museum & Library; the Institute of Social Sciences, University of Tokyo; IBM Japan; the International House of Japan; the Japan Broadcasting Corporation; the Economic History Section of the Ministry of Finance, the Diplomatic History Section of the Ministry of Foreign Affairs, and the National Diet Library-all of the Government of Japan; Motorola; National Cash Register; Otis Elevator; Texas Instruments; the Department of Commerce, the Department of State, the Library of Congress, and the National Archives-all of the Government of the United States; United Technologies; and Victor Company of Japan. I am grateful to the School of Organization and Management, Yale University for critical support during the final stages of the research and publishing process. It is a privilege to recognize the contributions of Florence Trefethen, Executive Editor of Harvard University's Council on East Asian Studies, for her expert work in editing and otherwise guiding the manuscript through to its completion. I wish to thank Simon and Nancy O'Shea for their generosity and consideration through many years of friendship. Finally, I would like to thank my family. My brother Peter and my late uncle Harold contributed significantly to the eventual completion of this work. My wife Roslyn provided enthusiastic support and constant encouragement. And it is with particular appreciation that I acknowledge the support of my parents Robert and Abelle, to whom this book is dedicated.

Contents

ACKNOWLEDGMENTS ABBREVIATIONS

Introduction Prologue: The Outer Gates, Origins to 1899 ONE

The Door Ajar, 1899-1930

TWO

The Sliding Door, 1930-1940

THREE

The Closed Door, 1940-1950

FOUR

The Screen Door, 1950-1970

FIVE

The Inner Door, 1970-1980 Conclusions

vii xvii

Contents

Appendixes A. T H E U N I T E D STATES-JAPANESE TREATY O F COMMERCE A N D N A V I G A T I O N O F 1911 (EXCERPTS) 255 B. T H E AUTOMOBILE M A N U F A C T U R I N G INDUSTRY LAW O F 1936 (EXCERPTS) 258 C. T H E U N I T E D STATES-JAPANESE TREATY O F FRIENDSHIP, COMMERCE A N D N A V I G A T I O N O F 1953 (EXCERPTS) 261 D. T H E F O R E I G N INVESTMENT LAW O F 1950 (EXCERPTS) 263

E. T H E CAPITAL LIBERALIZATION PROGRAM 266

E T H E F O R E I G N EXCHANGE A N D F O R E I G N TRADE C O N T R O L LAW O F 1980 (EXCERPTS) 271

NOTES BIBLIOGRAPHY INDEX

xii

Illustrations 1. Accumulated Value of U.S. Direct Investment in Other G-5 Countries, 1950-1980 2. Accumulated Value of U.S. Direct Investment in Japan, Brazil, and Mexico, 1950-1965 3. Direct Investment Inflows to Select Developed Market Economies, Percentage Distribution, 1960-1979 4. Direct Investment Inflows to Select Developed Market Economies as a Percentage of Gross Fixed Capital Formation, 1960-1979 5. Accumulated Value of Foreign Direct Investment (estimated) in Canada, Japan, the United Kingdom, and the United States as a Percentage of Global Stocks, 1914, 1938, 1960, 1971, and 1978 6. Direct Investment Inflows to Japan: The United States and Other Principal Source Countries, 1950-1980 7. One Prewar Japanese Government Proposal to Displace Foreign With Domestic Automobiles 8. The Supply of Motor Vehicles in Japan: American and Japanese Company Sources, 1934-1941 9. The Postwar Japanese Screening System for Inward Direct Investment Applications under the Foreign Investment Law: An Example of a Major Manufacturing Proposal 10. Japanese IC Production and MITI Approval of the Texas Instruments Investment Application 11. Foreign Direct Investments in Japanese-Based Companies Validated under the Foreign Investment Law, by Degree of Foreign Ownership, 1950-1964 12. Increasing Concentration of Intra-Keiretsu, Shareholdings, 1964-1973 13. Principal Members of the Mitsubishi Keiretsu, as of 1986 14. Japanese-Foreign Joint Ventures in the Postwar Japanese Chemical Industry, as of the end of 1967

...

Xlll

Tables 1. Major Legal Restrictions on Foreign Direct Investment in Japan before World War 11 2. American Branch Factories in Japan, as of 1932 3. Major Cases of FDI in Japan by Country and Industry, as of 1931 4. Examples of Zaibatsu Participation in Japanese-Foreign Joint Ventures in Japan, 1899-193 1 5. The Supply of Motor Vehicles in Japan, 1916-1935 6. Automobiles Imported Into Japan, by Country of Origin, 1914-1921 7. Domestic Suppliers of Ford Japan and GM Japan, as of 1935 8. Local Purchasing of Production Materials by Ford Japan: Amounts and Savings Over Imported Materials, 1930-1936 9. The Movement of Japanese Employees from GM Japan and Ford Japan to Japanese Automobile Companies: Some Prominent Examples 10. Changes in the Equity Ownership of Victor Talking Machine Company of Japan, 1927-1947 11. The Withdrawal of U.S. Multinational Investment from Japan, 1931-1941: Some Prominent Examples 12. The Disposition of Allied Patent Rights in Japan: Cancellations and Exclusive Licensing by Committee, August 1942-July 1943 13. Property of British, Dutch, and United States Nationals Seized by the Japanese Government during World War 11 14. Postwar Compensation for Prewar U.S. Direct Investment in Japan: Principal Cases (current dollars) 15. Cancellation of IBM Patents by the Japanese Government during World War 11 16. The Early Postwar Recapitalizations of IBM Japan (current yen) 17. Ownership of Shares in Otis's Japanese Affiliate during World War I1 18. Foreign Direct Investments through Acquisition of Stock and Proprietary Interest Validated by the Japanese Government through 1952, by Industry (1,000s of current dollars) 19. Foreign Direct Investments through Acquisition of Stock and Proprietary Interest Validated by the Japanese Government through 1952, by Country (1,000s of current dollars)

Abbreviations ACCJ AML AMSK ATC ATT BAT BOJ BTM CPC CTR EBC EIAJ EPCC EPCL ERRL ESB ESS FCN FDI FEC FECL FIB FIC FIDC FIL FMC FTIC

American Chamber of Commerce in Japan Anti-Monopoly Law Alps-Motorola Semiconductor Ltd. American Trading Company American Telephone and Telegraph British American Tobacco Bank of Japan British Tabulating Machine Company Civil Property Custodian ComputingTabulating-RecordingCompany European Business Council Electronics Industry Association of Japan Enemy Property Control Committee Enemy Property Control Law Enterprise Reconstruction and Readjustment Law Economic Stabilization Board Economic and Scientific Section Friendship, Commerce, and Navigation foreign direct investment Far Eastern Commission Foreign Exchange Control Law Foreign Investment Board Foreign Investment Commission Foreign Investment Deliberation Council Foreign Investment Law Ford Motor Company Foreign Trade and Investment Commission

xvii

Abbreviations GE GHQ GM GMOO GSI HCLC IBJ IBM IBT IC IMF INEC ISEI ITC

ITT JCSIA JTM JVC MCI MELCO MFA MHI MITI MMC MNC MOA MOC MOF MOS MRC MRU NCR NEC NTT OECD PCS

General Electric General Headquarters (SCAP) General Motors General Motors Overseas Operations Geophysical Services Incorporated Holding Company Liquidation Commission Industrial Bank of Japan International Business Machines International Bell Telephone integrated circuit International Monetary Fund International Nippon Electric Company International Sumitomo Electric Industries International Trade Commission International Telephone and Telegraph Japan Caustic Soda Industry Association Japan Tabulating Machine Company Japan Victor Corporation Ministry of Commerce and Industry Mitsubishi Electric Company Ministry of Foreign Affairs Mitsubishi Heavy Industries Ministry of International Trade and Industry Mitsubishi Motor Corporation multinational corporation Ministry of Agriculture Ministry of Communications Ministry of Finance metal oxide silicon Machine Record Center Machine Record Unit National Cash Register Nippon Electric Company Nippon Telephone and Telegraph Organization for Economic Cooperation and Development punched-card system

xviii

Abbreviations

PIL RCA RG SCAP SANACC SPAA SWNCC TAA TI

TIRB TO USITC USSBS WLIPR YSB

Petroleum Industry Law Radio Corporation of America Record Group Supreme Commander for the Allied Powers State-Army-Navy-AirForce Coordinating Committee Special Property Administration Account State-War-Navy Coordinating Committee technology assistance agreement Texas Instruments Temporary Industry Rationality Bureau Technical Observer United States International Trade Commission United States Strategic Bombing Survey Wartime Law on Industrial Property Rights Yokohama Specie Bank

xix

Introduction

By almost any measure, modern Japan has received less foreign direct investment (FDI) than any other major industrialized country.' The record of United States direct investment in Japan provides a vivid illustration of this reality. Throughout the eight decades (1899-1980) analyzed in this study, for example, total stocks of American direct investment in Japan fell far short of levels in other major economies such as those of the United Kingdom, Germany, and F r a n ~ e(See . ~ Figure 1 for a comparison of U.S. investment in these countries for the period 1929-1980.) Indeed, Japan trailed well behind even lessdeveloped countries like Brazil and Mexico as host to U.S. FDI through the mid-1960s (see Figure 2), as well as many other Asian economies both before and for many years after World War IL3 And even in 1980, by which time Japan had become the second largest market economy in the world, Belgium, Brazil, Australia, the Netherlands and 6 other countries still hosted more US. FDI than did J a ~ a n . ~

Introduction

Nor is this paucity of FDI in Japan revealed only by comparative levels of American overseas direct investment. In the last two decades included in this study, 1960-1979, for example, even as Japanese markets became increasingly "liberalized," less FDI entered Japan than other major OECD countries from all external sources. (See Figure 3.) When compared to these countries, such FDI inflows as a percentage of gross fixed capital formation similarly point to the extremely meager quantities of direct investment which found their way to Japan in this era. (See Figure 4.) And, throughout the century, Japan has ranked well below other major economies such as those of the United States, the United Kingdom, and Canada as a recipient of total stocks of inward direct investment. (See Figure 5.)

T H E FINDINGS Why has so little FDI penetrated the modern Japanese economy? Many observers blame foreign multinational corporations (MNCs) and emphasize the alleged failure of these firms to make substantial efforts to invest. One distinguished Japanese business historian, for example, asserts that foreign corporations failed to make large direct investments throughout the prewar period because Japan was not a "major concern."5 Yet such assertions are not limited to the years before World War 11. A noted Japanese economist, for instance, states that foreign MNCs practiced "benign neglect" of the Japanese econ~ ~ two leading American consulomy-at least during the 1 9 5 0 And tants on foreign business in Japan go much further: "The indifference and ignorance" of foreign investors, together with their 'tnwillingness" to 'pay the price in effort and patience," these critics contend, provide at least as important an explanation for the lack of FDI in Japan as any other throughout the entire postwar era.' Spokesmen for the Japanese government have long concurred with assertions such as these. 'What distinguishes the successful foreign company in Japan," to quote one typical statement, "is [its] seriousness in commitment, perseverance, willingness to work hard and clear-eyed confi-

Introduction

dence in [its] own worth and potential."8 According to this account and others, lack of these qualities explains why many foreign companies have failed to invest successfully in Japan. In contrast to this received wisdom, the present study, based on a detailed examination of numerous American multinationals that sought to directly invest in modern Japan, finds such emphasis on the relative degree of foreign effort largely misplaced. For one thing, many American (and other foreign) companies that made extraordinarily intensive efforts to invest still found access to the Japanese market difficult to obtain. And for another, American firms that finally did manage to invest in Japan often found that their degree of effort did not provide the key explanation for their eventual success. To explain the paucity of FDI in modern Japan, this study finds that the operation of Japanese investment restrictions, generally designed to promote the interests of indigenous industry, deserves more attention than many previous accounts would suggest. Whether imposed through Japanese government sanction or the direct actions of domestic business, these restrictions effectively denied numerous American companies unimpeded access to the Japanese market as direct investors. Sometimes this denial was absolute; at other times it continued until the American company agreed to share unique technologies or other vital assets; and at still other times it lasted until Japanese companies had become so strong that the potential U.S. entrant no longer posed a serious threat to local competitors. At virtually all times when such restrictions operated, however, they effectively impeded the efforts of American multinationals. Who initiated these restrictions, and determined their timing and substance? Many students of the Japanese political economy emphasize the primacy of the state in economic policymaking, and therefore suggest that, at least with respect to policy-based restrictions, the government played the critical role. As will become clear, however, this study finds that Japanese btlsiness often initiated and shaped the application and, in many instances, the eventual removal of such capital control policies. In addition, the Japanese private sector played a similarly vital role in influencing the character of those investment

Introduction

restrictions that operated even after public controls had been lifted. These findings therefore differ significantly from prevailing interpretations of Japan's modern ~oliticaleconomy.

THE METHODOLOGY To examine these and other issues, this study traces the development of Japanese treatment of inward direct investment, together with the strategies of numerous major American multinationals that sought to enter and develop in modern Japan. The nature and degree of constraints placed on foreign firms changed over time; each chapter presents a stage in this evolution. Case studies of individual American firms then illustrate the effects of these constraints on the United States investor in each period. A brief sketch of the earliest history of Japanese policies towards foreign business precedes Chapter 1. Japanese treatment of United States direct investment progressed through 5 distinct stages during the 80 years examined in this study. Japan imposed the fewest restrictions on American investors during the period 1899-1930, which I have called the Door Ajar. Although regulations limited foreign investment in a variety of specific firms and industries, in historical terms the overall level of restriction was relatively modest. Indeed, as the cases of Western Electric and Victor Talking Machine clearly demonstrate, in some instances the Japanese government actively encouraged American firms to invest. In the period 1930-1940, which I have labeled the Sliding Door, Japan's restrictions on the American investor steadily increased. New laws and regulations expanded the scope as well as the intensity of these restrictions, which made business operations for Americans increasingly difficult as the decade progressed. The experience~of Ford and General Motors, here examined as case studies, illustrate well the effects of these restrictions on even the largest, most powerful, and most determined American corporations in this era. Investment restrictions reached their apex in the period 1940-1950, which I have termed the Closed Door. In wartime, the Japanese authorities expropriated and then turned to domestic advantage most of

Introduction

America's principal direct investments in Japan that had survived the 1930s. And during the exceptional years of occupation, American and Japanese officials together perpetuated the tight controls over foreign investment first instituted in the prewar and wartime years, although some U.S. firms benefited from the special demands of the Occupation government. Case studies of International Business Machines and Otis Elevator depict clearly both the results of these generally tight restrictions and the benefits some American companies enjoyed after hostilities ceased. Japan operated a comprehensive and fully elaborated system to filter out most foreign direct investment during the years 1950-1970, which I have chosen to call the Screen Door. Based on the Foreign Investment Law of 1950 and other measures, the authorities scrutinized all major FDI proposals through an intense, case-by-case screening procedure. This procedure, heavily influenced by domestic industry, sought to separate technology and other assets from the direct control of their foreign owners or, failing that, to insure that powerful domestic business groups directly profited from those foreign companies that were eventually permitted to invest. The experiences of Coca-Cola and Texas Instruments demonstrate vividly the effects of these restrictions on the American multinational. Finally, overt government restrictions on the American investor gave way to more subtle investment barriers in the decade of the 1970s, which I have named the Inner Door. In place of public laws and regulations, practices and arrangements originating directly in the Japanese private sector-some intentionally designed to discourage FDI, but others not so deliberately designed-became increasingly important factors which limited inflows of American direct investment. The experiences of Dow Chemical and Motorola reflect how these evolving controls constrained American multinationals which otherwise possessed all the requisite ingredients for "success." The 10 American multinationals highlighted in the text were selected principally because each constituted a critical case at a relevant stage of the history. All these firms drew significant attention during the period in which they are here scrutinized, for each possessed considerable assets and determination to "succeed" in Japan-

Introduction

yet most of these companies confronted major barriers to such "success." As such, these 10 firms illustrate the fullest range of both public and private Japanese restrictions as well as the responses of American multinationals in their respective historical periods. I selected only firms that met certain additional criteria. (1) In their respective periods all were large, U.S.-based corporations with long and considerable experience as foreign direct investors.9 (2) Each sought clear, unequivocal control of its own destiny in Japan by attempting, with varying degrees of success, to establish majority- or wholly-owned operations. (3) Each firm undertook at least one direct manufdcturing investment in Japan which, with the exception of petroleum in certain periods, ranks as the largest category of FDI in modern Japan.lo (4) Each directly participated in the Japanese market during all or part of the eight decades from 1899. (5) In all 10 cases adequate documentary materials and other information were available to permit a thoroughgoing analysis based on primary and, in general, corroborating secondary evidence. (6) Finally, these cases were chosen to reflect the experiences of American firms engaged in a variety of different industries-in the event, the chemical, electrical component, elevator, foodstuff, motor vehicle, phonograph, tabulating machine, and telephone industries. The experiences of these American multinationals, as already noted, depended largely on the nature and operation of Japanese investment restrictions in the relevant historical period. In addition to their status as critical case studies, the 8 companies examined for their activities prior to 1970 also were "successful" American companies in Japan-at least in terms of local market share in their respective industries and the acclaim each received from Japanese and non-Japanese commentators alike-during all or part of the period in which they are analyzed." The 2 U.S. firms scrutinized in the 1970s, however, were not similarly "successful," for there were few, if any, major American investment "success" stories in Japan during that period. To judge by degree of technological expertise, overseas investment experience, effort to enter the Japanese market, and other factors, these 2 U.S. firms probably should have been highly "successful" in Japan, yet both confronted severe local restrictions which effectively frustrated their investment aims.

Introduction

In addition to these 10 American multinationals, this study also analyzes the experiences of many other U.S. direct manufacturing investors in modern Japan so as to achieve a broader spectrum of experience than any 10 examples alone could provide. Included, for example, are the "successful" investments in Japan of several major U.S. petroleum companies, together with a number of other prominent examples of American direct investment in Japan involved in a range of industrial activity from light bulbs to sewing machines to synthetic rubber. And, despite this study's emphasis on American direct investment in Japan, its findings carry important implications for the overall history of foreign direct investment in that country, for U.S. FDI accounts for the majority of all FDI in Japan throughout the twentieth century. (See Figure 6 for a comparison of FDI inflows to Japan by principal source countries, 1950-1980.) Access to rich historical materials, in part encouraged this examination of earlier American investment experiences in Japan, yet the implications of this analysis extend beyond the past. Many of the corporate and government records scrutinized for this study have only recently become available, in large part thanks to the willingness of certain Japanese and American corporations and individuals to share historical information, together with the opening of official government documents both in Tokyo and Washington. This has enabled me to delve into the dynamics of American multinational investment in modern Japan from a broader perspective than the more limited information about current experiences alone would allow. Moreover, these earlier experiences continue to shape the perspectives and behavior of Japanese and American actors concerned with foreign direct investment in Japan even today. The choice of the 1899-1980 time period was based upon a number of considerations. The starting point was set at the earliest date from which U.S. companies legally were permitted to invest directly in the domestic Japanese market-a privilege first granted to Americans in 1899. An endpoint of 1980 was selected for two principal reasons. First, 1980 marks a turning point in the development of Japanese public regulation of FDI, for the centrally important Foreign Investment Law was abolished that December. Second, the qual-

Introduction

ity and breadth of information available to the researcher declined .*, nificantly for events of later years.12 Certain qualifications and explanations are in order. First, the, ,;,: principal cases examined in this study do not, of course, cover Lilt: entire universe of experiences which all American direct investors sustained in Japan during each period analyzed. As noted above, however, the experiences of other American investors are included in part to note exceptions to the overall lessons provided by the firms treated as case studies. Thus, for example, it is shown that some U.S. companies did prove relatively uninterested in entering or remaining in Japan as direct investors in certain periods, and that other firms-such as those operating in the petroleum industry in particular-encountered fewer obstacles to entry than many of the case-study companies. Second, the study's finding that Japanese business often played a critical role in determining restrictions on foreign investors does not mean that the role of the government was insignificant, nor even that official actions in every case were determined exclusively by Japanese actors. Indeed, at certain times the authorities did exercise enormous power over foreign investment policies and, at other times, the direction of influence and relative power of business and government actions proved difficult to assess because both sets of players fundamentally agreed on the overall policy objective. Further, the actions of the government were not always determined by Japanese officials alone, for the United States wielded enormous influence over Japanese policy during much of the 7-year Allied Occupation. Third, and finally, while the information obtained for use in this study is far more comprehensive than that previously available, it has limitations. Explanations for Japanese government policies and motives, for example, rely largely on the written and oral statements of Japanese officials, whereas accounts of the experiences of U.S. investors are based to a great extent on the testimony of American managers and the related records of their corporations. At the same time, however, the author has taken pains to uncover additional sources of information, and to seek out different perspectives on critical facts

Introduction

and issues. These efforts included extensive (and often repeated) interviews with numerous Japanese and American business managers and government oficials, together with the collection and analysis of public and private documentary materials in Japanese and English from both sides of the Pacific.

1929 1936 1943

60.7 46.7 32.9

145.0 145.7 167.4

216.5 227.8 512.8

485.2 474.1 518.8

This content downloaded from

Yar Source U.S Depnnment of Commc~cc. Note Amounts & a d at historical d u e s Ih G5, or Group of Five, repmend 5 of the leding mukc economies in the mrhi when the Group was b r d in 1975. Prc-195Odptp.. JP~.II FGamnny

FIGURE 1 Accumulated Value of U.S. Direct Investment in Other G 5 Countries, 1950-1980

So-

Year

United Nations Cenm on Tnnsnationd Corpontions, Salient fi.atna and T d in limign This content downloaded from Dimt I m r a f i m t , p 43.

U n M States

FIGURE3 Direct Investment MOWS to Select Developed Market Economies, Percentage Distribution, 1960-1979

1938

Year

1960

1971

1978

Source JohnH. Dun&& "Changes in the Level and Strucnur of International Production: The Lut One Hundred Years,"in Mark Cscson, cd., 7 h GromzhofInMMtiacrl This content downloaded from Buinm p 88

1914

United States

the United States as a Percentage of Global Stocks, 1914, 1938, 1960, 1971, and 1978

FIGURE 5 Accumulated Value of Foreign Direct Investment (estimated) in Canada, Japan, the United Kingdom, and

So-

This content downloaded from

1950-55 1B S O 196145 1966-70 1971-75 197640 Tsosh6 Sang* S b Sangyo V u Kyoku Kokusi Kigy6 Ka (Multinational Enmprise Division, Industrial Policy Bureau, MITI), ed, Gairhikci k i e no ddk8 (Trends in foreign capiraktfiLuedenterprises), wious iaua N o w Flows calculated on notifiation basis in historical dollar values Available evidence also suggests that the United Stam nnked as the lvgst foreign direct invesror in Japan during earlier periods of the twentieth century; see, for example, Nihon K-6 G i a (Industrial Bank of Japan), G& hisha no honpd tarhi (Imrestmenu by brcign wmPU;rs in Japan), pp 12-13, 15, 18-19, 21.

FIGURE 6 Direct Investment Inflows to Japan: The United States and Other Principal Source Countries,

PROLOGUE

The Outer Gates, Origins to 1899

Shogunate permitted the Dutch to establish a trading concession on the island of Hirado in 1609, marking the original foreign direct investment in Japan by Western interests2 The Shogunate then granted a special charter to the British East India Company to establish a second Western trading outfit on Hirado four years later, and, by 1614, this British organization also had established a "factory" or commercial depot at that location.3 These two foreign concessions, though technically operating on Japanese soil, carried out their limited commerce discreetly separated from the rest of the nation. Yet the Japanese authorities soon closed even this limited opening to commerce with the West. Fearing increased Christian religious and other foreign influences, the Shogunate reversed its earlier policy and, by about 1640, had banned virtually all Western business activities

The Outer Gates, Origins to 1899

and other foreign intercourse, inaugurating a national policy since known as sukoku, or "closed country." O n the tiny island of Dejima just off the coast from the southern city of Nagasaki, a limited Dutch trading mission-under the constant vigilance and strict regulation of local officials-constituted the only Western business enterprise in Japan for the next two ~enturies.~ It was not until United States Commodore Matthew Perry forced the partial opening of the country in 1854 that the Japanese once again permitted the establishment of foreign business enterprise in their midst. In direct response to this early example of foreign pressure (or guiutsu, as it came to be termed in Japanese), the Shogunate four years later concluded commercial treaties with the United States, Russia, the Netherlands, Great Britain, and France. From 1859, business interests from these Western nations could establish commercial enterprises within designated port areas commonly referred to as "Treaty settlement~."~ These accords further granted the Western signatories extraterritorial rights in the port settlements and limited Japan's authority to set its own tariff rates, thereby leading many to term these agreements the "unequal treaties." A group of American entrepreneurs in 1859 established in Yokohama the first U.S. direct investment in Japan under the name of Walsh, Hall, and Co. This same concern also undertook the first significant U.S. direct rnunufacturing investment in Japan by acquiring in 1877 a paper mill in the Kobe Treaty Settlement from an English company gone bankr ~ p tYet . ~ Jardine, Matheson & Company, Butterfield and Swire, and other British enterprises dominated foreign commercial activity in Yokohama and the other Treaty Settlements in the late nineteenth century.' As trade and financial intermediaries between Japan, China, and the West, these firms played a major role in promoting Japanese trade at a time when local entrepreneurs lacked the experience and contacts to perform these functions themselves.* Despite this mid-nineteenth-century change in official policy to permit the entry of the first foreign companies in the modern period, the authorities treated foreign direct investment outside the Treaty Settlements in a wholly different manner. A pervasive and deep-seated fear that foreign investors might threaten national eco-

The Outer Gates, Origins to 1899

nomic and political sovereignty largely motivated the Japanese leadership to bar FDI from the interior of the country. "The notion that the introduction of foreign capital is detrimental to national indepen~ dence," explained a leading Japanese official in the late 1 8 0 0 ~for example, "has long been entertained by our conservative people, and a very influential notion it has been, too."9 Japanese "mismanagement" of foreign investment, this official warned, might well invite the intervention of foreign powers in national affairs.10 Indeed, one influential leader cautioned the ruling Tokugawa Shogunate in its closing days against borrowing even limited funds from France on an official basis: 'If the government should be unable to repay, it will lose the land offered as a security," explained the feudal lord of the province of Echizen. "This will lead to foreign invasion, as in the case of India."ll Similar fears inspired other Japanese officials to call for national protection against the threat of foreign capital. These fears led the authorities to impose severe restrictions, which effectively halted foreign investment at the Settlement borders. Government policy towards FDI in the domestic Japanese economy never was clearly articulated before the close of the nineteenth century-Japan's early treaties with the West, for example, neither permitted nor explicitly prohibited foreign capital in the nation's interior-but official actions soon made plain the intentions of the leadership.12 American, British, and other Western interests did manage to directly invest modest sums of capital in the Japanese mining, shipbuilding, milroad, and other industries following Japan's tumultuous shift in political power from the Tokugawa Shogunate to the Meiji Government in the late 1860s.13 Once the new Meiji leaders had consolidated their power in the 1870s, however, they moved quickly to force out this foreign capital and transfer ownership to Japanese interests. This policy of gaishi haijo (exclusion of foreign capital) ensured that native hands controlled virtually every major domestic industry-save foreign trade and finance-through the remainder of the 1800s.14 The early history of foreign investment in Japan established at least one fundamental pattern which would recur throughout most of the succeeding decades. Across centuries of experience and through

The Outer Gates, Origins to 1899

changing systems of governance under a variety of political rulers, the Japanese leadership had imposed severe restrictions on inflows of direct investment from abroad. These restrictions, in turn, effectively had discouraged greater foreign investment in the Japanese market. Although the level of restriction would vary after the changes of 1899, in international terms such restrictions remained comparatively severe during most of the following 80 years.

ONE

The Door Ajar, 1899-1930

Japan instituted its first great capital liberalization in 1899. Simultaneous with revision of the unequal treaties, the Japanese authorities that year, for the first time in history, explicitly granted the United States and numerous European countries the right to directly invest inside the Japanese market.' The new bilateral accord with the United States, which came into effect on 17 July 1899, is broadly representative of these new agreements.= Not only could U.S. citizens now travel and reside freely and enjoy full protection of their property throughout Japan-privileges Americans had never before held in that country-but they were also guaranteed under the new convention extensive rights to trade, to ''own or hire and occupy houses, manufactories, shops, and premises," and to 'lease land for residential and commercial purposes."' Also included in this and revised treaties with the other Western Powers were clear guarantees for patent, trademark, and design protec-

The Door Ajar, 1899-1930

tion. These new treaties, themselves revised in 1911 in part to spell out the rights of foreign investors in still more explicit language, remained in effect throughout the pre-World War I1 era.4 (See Appendix A.) In addition, the authorities in 1899 revised the Japanese Civil and Commercial Codes and other domestic regulations to accommo.date the new rights of foreign investors5 Japanese officials hailed these developments as revolutionary changes in the nation's policies towards foreign investment and other aspects of its international relations. "Heretofore, the foreign residents in Japan were like drops of oil in a glass of water," observed one influential member of the Japanese nobility in 1899 at an international gathering at Tokyo's Imperial Hotel to celebrate Japan's new treaty relations with the West. "There may have been a mechanical mixture, but there was no chemical combination."6 The Mayor of Yokohama chose the same metaphor that evening in a separate celebration also to mark the revision of Japan's "unequal treaties," and then added: 'Wine causes oil and water to mix, and we are ready and willing to drink wine with you."7 "Come, friends, come!," the nobleman concluded in his address to the foreign audience at the Imperial. 'We shall do our best to make your residence in our country as comfortable and advantageous as possible."~These and other statements followed an official Rescript issued in the name of the Emperor just five weeks earlier, which called upon all Japanese officials, "in compliance with the great policy of opening the country," to "observe the utmost circumspection" so that "subjects and strangers alike may enjoy equal privileges and advantages."9 After centuries of restriction, the authorities proclaimed that openness had become the order of the day. This capital liberalization, together with other changes in Japanese policy, created importarn incentives for foreign direct investment in early-twentieth-century Japan. These other changes included, perhaps most notably, revision of the country's tariff rates, which, as previously noted, had been subject to control under the unequal treaties from the mid-1800s. Soon after regaining full autonomy to set tariffs in 1911, Japanese officials chose to levy significantly higher rates on imports of a broad spectrum of industrial and other goods. Major

The Door Ajar, 1899-1930

tariffs were imposed following World War I, and again after the economic devastation of the 1923 Great Kanto Earthquake.10 Such measures created powerful motivations for some overseas companies to "jump over" these protective walls by directly investing in Japan. These and other incentives encouraged American multinationals to establish operations in early-twentieth-century Japan." Western Electric, which had sought to directly invest in the Japanese interior even before the official deregulation of 1899, for example, chose to set up a local joint venture immediately after that change in government policy. Victor Talking Machine similarly found the Japanese market an attractive site for direct investment, and elected to enter shortly after the imposition of major Japanese tariffs in its industry in the mid-1920s. Other of America's leading prewar multinational enterprises also invested in Japan during these decades, including General Electric, Singer Sewing Machine, B. F. Goodrich, Ford, General Motors, and Otis Elevator.12 Despite Japan's significant 1899 capital liberalization, however, the authorities continued to place important restrictions on many types of foreign investment. These restrictions included laws and other regulations specifically limiting or prohibiting foreign investment in a variety of industries, as well as pressures and inducements for foreign investors to undertake portfolio rather than direct investments in Japan. Nonetheless, in historical terms the three decades from 1899 represented an unusually tolerant period in Japan's treatment of foreign investment, which is why this era can appropriately be likened to a ''Door Ajar."

JAPANESE RESTRICTIONS MOTIVES

Japanese treatment of foreign investment from 1899 was born of two essentially conflicting motivations. On the one hand, the nation's rapidly growing appetite for overseas technologies and foreign investment funds, together with the longstanding desire to rid the nation of the unequal treaties with the West, gradually encouraged the leader-

The Door Ajar, 1899-1930

ship to adopt a relatively flexible and liberal capital-control regime. Japanese demand for foreign capital grew ~ a r t i c u l a rstrong l~ after the conclusion of the Sino-Japanese War of 1894-1895, when domestic funds no longer could pay for rising imports of capital equipment and overseas technologies. New surges in capital demand followed the outbreak of World War I and the aftermath of the 1923 earthquake. Many domestic business firms became prominent advocates of less restrictive capital controls. 'We need . . . capital," stated the leading entrepreneur Baron Shibusawa after the turn of the century. "The capital we have in the country is not enough. So what is now wanted in Japan is foreign capital."13 Many in government agreed.14 In addition, the nation remained committed to its decades-old goal of regaining full autonomy lost through the unequal treaties with the West. Foreign capital liberalization, the leadership understood, could be used as a bargaining tool in negotiations to achieve that venerable goal. Despite these powerful forces that led to official policy changes, however, Japan's deep and abiding fear of outside influence continued to color the nation's treatment of foreign investment. Some business and government leaders remained particularly fearful that Western firms might manipulate their superior technologies and relatively vast sums of capital to acquire commanding positions in important sectors of Japanese industry. Even the prospect of foreign ownership of Japanese land-not granted in the 1899 changes-evoked considerable controversy in the Diet. In heated parliamentary debates in 1913 over the granting to aliens of the right to own land, for example, one Representative warned that it would be a "dangerous policy" for the government to allow foreigners to purchase Japanese land. Indeed, according to another contemporary account, "Even [the internationalist] Mr. Ozaki Yukio said that the purchase of large quantities of land in Japan's chief cities by foreigners as investments" represented "a danger which the Japanese had to consider and guard against."15 Indeed, it was not until 1926 that foreigners were allowed to buy real estate in Japan.16 Such fears encouraged extreme caution and wariness towards foreign investment.

The Door Ajar, 1899-1930 METHODS

These varied motives 'encouraged the authorities to place looser yet still significant limitations on the foreign direct investor even after the changes of 1899. For one thing, a variety of laws operated to restrict or prohibit FDI in numerous enterprises and fields of industry during all or part of the following three decades. Regulations barred or severely limited foreign direct investment in insurance companies, banks and other financial institutions, communications firms, public utilities, shipping and other transportation organizations, and in industrial-development institutions. The government also passed measures prohibiting FDI in industries such as mining and dyestuff manufacture, and discouraged potential foreign investment in railroads by nationalizing major private railroad companies in 1906." (See Table 1 for a partial listing of industry-specific legal restrictions on FDI in prewar Japan.) Other regulations, which stipulated that a majority of shareholders had to consent to the acquisition of any existing Japanese corporation, provided further protection for Japanese firms.18 In addition to outright restrictions on FDI, the government also took steps to funnel overseas funds into portfolio rather than direct investments. Leading officials such as the Ministry of Finance's Sakatani Yoshir6, for example, tried to persuade potential foreign investors at least as early as 1897 to commit their funds on a portfolio rather than a direct basis. Sakatani revealed that numerous foreigners had attempted to directly invest in Japan at least two years before treaty revision, but he counseled a different approach: Some of the capitalists of England, America, France, and Germany seem to be trying to get their capital invested in some of our private enterprises. In my opinion, no safer investment of foreign capital could be made than investing it in our bonds, for it would relieve capitalists, living in a distant land, of the great trouble and inconvenience of constantly watching the business in which his investment has been made.19

Official efforts went well beyond such simple appeals to foreigners. Perhaps most important, the government established in 1900 the Industrial Bank of Japan (IBJ) principally to channel investment capi-

The Door Ajar, 1899-1930

TABLE 1 Major Legal Restrictions on Foreign Direct Investment in Japan before World War I1 Activity

Remarks

Legal Basis

Financial Exchanges Coastal Trade Insurance

Prohibited Prohibited Restricted

Mining Placer Mining Gunpowder Manufacture Coastal Air Transport Dyestuff Manufacture Banking Automobile Manufacture Synthetic Oil Manufacture Aircraft Manufacture Machine Tool Manufacture Shipbuilding Light Metal Manufacture Organic Synthesis Manufacture

Prohibited Prohibited Prohibited Prohibited Restricted Restricted Restricted Restricted Restricted Restricted Restricted Restricted

Law No. 5 of 1893 Law No. 46 of 1899 Imperial Ordinance No. 380 of 1900. Law No. 45 of 1905 Law No. 22 of 1908 Law No. 53 of 1910 Law No. 54 of 1921 Law No. 29 of 1925 Law No. 21 of 1927 Law No. 33 of 1936 Law No. 52 of 1937 Law No. 41 of 1938 Law No. 40 of 1938 Law No. 70 of 1939 Law No. 88 of 1939

Restricted

Law No. 96 of 1940

Source: Japan, Ministry of Finance, Archives. Adapted from "Status of Foreign Nationals in Japan (Principally in the Economic Field)," February 1948. Notes: Restrictions generally required that Japanese citizens control all enterprises in a given field. The list, however, is far from complete. Omitted in particular are restrictions or prohibitions on the panicipation by nonjapanese persons in enterprises in the fields of finance, communications, public utilities, transportation, and industrial-development institutions. In addition, foreign restrictions on mining were first passed in 1873.

tal from foreign to Japanese entrepreneurs on a portfolio rather than a direct basis. Given the perceived vulnerability of Japanese business enterprise, the IBJ explained in its official history, "If foreign capital is allowed to flow in freely without passing through a central organ," there existed the real possibility that "foreigners will select Japanese enterprises in which they want to invest and will eventually take over the enterprises." The IBJ sought to induce foreign portfolio rather than foreign direct investment by offering national guarantees for the

The Door Ajar, 1899-1930

former but not the latter.20 The authorities acted in other ways as well to steer foreign funds into portfolio investments so that the nation could benefit from overseas capital without risking loss of control to foreign interests.21 Despite these safeguards, however, some government officials still hesitated to accept the entry of foreign enterprise. One Japanese official, for example, tried to go beyond the law in obstructing the efforts of a foreign entrepreneur to acquire a controlling interest in a Japanese firm in the Kansai region. Mayor Tsuruhara of Osaka, opposed to the attempts of American businessman Anthony Brady in the early 1900s to revitalize the ailing Osaka Gas Company through direct investment in that firm, vowed to check the success of the American's efforts on nationalistic grounds-even if he did not have the legal authority to do so: When it is thought that the greater part of the profit made by [the Osaka Gas Company] will be taken away by foreigners, it is impossible for Japanese to look on in silence. Both Mr. Kataoka, President of the gas company, and Mr. Hiraga are my personal friends, but in public &airs I shall not give way to personal feelings. They refer to the law and quote the charter granted by the Governor, and to the statement of the Home Minister, and say that, when the matter is brought into the court of administrative litigation, they will win. While they are thinking in this way I will advance straight on with my policy. I am sure to obtain ultimate victory. The inhabitants of Osaka are the customers of the gas company. I will appeal to the inhabitants of the city from financial and moral points of view, and induce them to give no protection to the company but to withdraw their support from it.22

Notwithstanding the opposition of the Osaka mayor, however, the American entrepreneur later managed to invest his capital in the company after receiving assurances from national officials that the investment would not be blocked.23 Despite outright restrictions and other government actions to control inflows of direct investment, however, in comparative terms Japanese policies towards FDI during the first three decades of the twentieth century proved far less restrictive than they had .been during previous periods in the nation's history. Indeed, Japan's polices

The Door Ajar, 1899-1930 towards FDI in the early 1900s also proved less restrictive than during the several decades which followed. In the long history of Japanese capital controls, therefore, the early twentieth century represented an exceptional moment of comparative relaxation between prolonged periods of severe restriction.

A M E R I C A N M U L T I N A T I O N A L STRATEGIES WESTERN ELECTRIC One of the oldest and largest American multinationals, Western Electric, originally was established to manufacture telephones just three years after the 1876 invention of that device by Alexander Graham Bell in Boston. The manufacturing arm of the Bell System from 1881, Western Electric quickly followed its parent organization into numerous foreign markets. To supply telephones to Bell's newly created foreign division, International Bell Telephone (IBT), in 1882 Western Electric set up a factory in Antwerp, Belgium, near IBT headquarters. Direct manufacturing investments in other European markets soon followed, and, by 1897, Western Electric owned and operated plants in London, Berlin, Paris, Milan, Vienna, and St. Petersburg in addition to Antwerp.24 The Japanese authorities, who recognized the usefulness of telephones almost immediately, initially encouraged their manufacture in Japan independent of foreign involvement. Japan's Ministry of Industry first imported the telephone less than twenty months after Bell's invention. The Osaka Police Department put the telephone to use in Japan shortly thereafter, and, before long, the principal government ministries in Tokyo operated phones for limited oacial purp o s e ~ At . ~ ~the factory of the Ministry of Industry, engineers tried with crude lathes and other limited equipment to replicate the imported sets. By 1885, government workers had managed to produce 252 telephone sets based on the imported models. Still, the quality and technical sophistication of these devices continued to lag behind the latest examples from the West, and their manufacture could not keep pace with demand. Smaller Japanese firms such as Oki & Com-

The Door Ajar, 1899-1930

pany also tried to match foreign phone makers, but proved little more successful in terms of quality or volume.26 Apparently dissatisfied with the results of these early efforts, the authorities chose to rely more on foreign producers to meet domestic needs. As a first step, Dr. 0 i Saitarb of the Ministry of Communications (MOC) was dispatched to the United States and Europe in 1888 to report back on the state of foreign telephone companies and the systems they had established.27 During his visit, Oi met with top managers at Western Electric among other firms, and, upon his return to Japan the following year, recommended that his government adopt some of the American company's telephone systems.28 The resulting shift in government policy, together with rising demand for the product's use, encouraged rapid diffusion of the telephone in Japan. With switchboards and other Western Electric equipment brought back from America by Oi, the authorities inaugurated pu'blic telephone service as a government monopoly in 1890. Although there were only 200 subscribers in Tokyo and 40 in Yokohama during its first year of operation, just five years later the phone system served almost 3,000 customers with many more applicants on long waiting lists. "In Tokyo they have 4,000 applications ahead for telephones and new applications are coming in at the rate of 130 per month," reported one observer in 1897, "yet the most they are trying to do is to connect 1,500 new subscribers next year."29 Oi's 1888 visit to the United States and Europe had established the first link between Japan and western Electric, and relations expanded rapidly thereafter. Meeting with New York manager Harry Thayer, European manager F. R. Welles, and other Western Electric officials, Oi had explained at length his government's interest in building a telephone system in Japan. Apparently encouraged by his conversations with Oi, Thayer began to make inquiries about developing an export business to Japan. Shortly after meeting Oi, for example, Thayer approached Iwadare Kunihiko, a former telegraph engineer with the Japanese government who had left official duties to study at the Edison Machine Works in Schenectady, New York. Iwadare, however, proved unable to come up with the name of a suitable Japanese

The Door Ajar, 1899-1930

importer. Still, the Japanese government's continued interest in Western Electric products encouraged Thayer to persevere, and, by 1891, the American company, in part through its Antwerp subsidiary, began to export telephone equipment to Japan via the commission merchant Takata & Company of Tokyo. Government demand rose steadily, and shipments continued to grow. To further expand business, the U.S. firm in 1895 transferred its exclusive agency agreement to the talented Iwadare, who had since returned to Japan and specialized in importing electrical goods from the United States30 The Japanese government had played a critical role in stimulating Western Electric's interest in Japan. MOC's Oi Saitara had first alerted the American company to the possibilities of the Japanese market, and his government's decision to adopt Western Electric systems further encouraged the foreign firm to do business with Japan. New government moves would soon invite Western Electric to take further steps to promote its interests in that market. The government's desire to develop telephone service still further led the authorities to undertake a 13-million-yen, 7-year telephone expansion program from April 1896. Plans called for an increase in telephone subscribers from 3,000 to 25,000, and the purchase and installation of 16,000 miles of long-distance circuits.31 Once again, the government sent officials to the United States and Europe to survey the state of telephone systems in the West and meet with representa"All over tives of Western Electric and other telephone c~mpanies.~* our Empire now," Commissioner Mine of MOC pronounced upon the official mission's landing in San Francisco in May 1896, "there is great interest in electrical power and in electrical lighting. Electricity has been introduced in several cities, but the Government wants it all over the country. It is the same way with telephones," he continued. 'We have seen the value of them and desire to have them generally adopted."33 One of the mission's most important stops was in Chicago, where a member of the team met with E. M. Barton, President of Western Electric. During a lengthy interview, Nakayama Ryaji of MOC described to Barton in great detail his government's plans rapidly to

develop the Japanese phone system on a much grander scale. Projected demand would far outstrip domestic production capacities, Nakayama explained, so the government would seek equipment from abroad: "So far as he can see," Barton later recounted of his conversation with Naka~ama,the Japanese authorities "have no present intention of establishing the manufacture of telephone apparatus in their own country. The work is so urgent that there is no time for this. They must import their apparatus and cables and probably their copper wire for long lines."34 Once again, a direct representation from the Japanese government encouraged Western Electric to reassess that country's market. Within months of his mid-1896 meeting with Nakayama, President Barton sent Thayer of the New York office to investigate business opportunities in Japan at first hand. As a result of his trip, Thayer recommended that the firm shift from simple exporting through a local agent to direct investment in concert with a Japanese firm. His reasons were several. For one thing, Thayer noted that many Western Electric products were damaged in shipping, and therefore advised the firm to station in Japan a company expert who could have equipment repaired before delivery to the government: 'With the amount of business secured and in sight," Thayer wrote while still in Japan, "it seems essential to me that the stuff should be shipped early enough so that it can be tested and repaired if necessary before delivering it to the Government, and we should have some one here competent to do such a job right or to get it done."35 For another, Thayer anticipated keener competition from local firms, and judged that partial production in Japan-of "such parts as come within the measure of skill possessed by the native"-could cut transportation and labor The policies of the Japanese government and other factors also figured in Thayer's decision. He noted, for example, that import duties operative even in the late 1800s significantly raised the local price of wholly imported goods, and that there was a "strong popular and governmental sentiment in favor of home manufactures."37 By teaming up with a Japanese company, Thayer reasoned, Western Electric could further save on costs while at the same time satisfying the

The Door Ajar, 1899-1930

objectives of its local hosts. Current government regulations would allow foreign direct investment only in the open ports under the unequal treaties, Thayer understood, but upon their revision in mid1899 the authorities would permit such investment even in the interior of the country. After obtaining management approval, Thayer sought to implement Western Electric's new strategy for Japan. Thayer's deputy, W. T. Carleton, traveled to Tokyo in late 1897 and negotiated a tentative agreement with Oki & Company, the local manufacturer which, though technologically no match for the U.S. firm, still possessed the most experience and the best facilities in the fledgling Japanese telephone industry.38 According to the contract, Western Electric would establish an office in Yokohama to import and sell telephone equipment to this local firm. Oki, for its part, would manufacture those pieces of Western Electric equipment which could be "made in Japan to better advantage," and sell the completed products to the government. The two firms would evenly divide profits from the operation, and Western Electric would have the option to purchase a 50-percent interest in Oki upon treaty revision.39 In the end, however, Oki backed out of the deal and all negotiations between the two companies came to a close.40 Carleton then turned to Iwadare, Western Electric's importing agent. The American proposed that Iwadare set up a limited partnership to handle the same types of manufacturing and sales activities first under negotiation with Oki, and that the partnership be reorganized as a joint-stock company with Western Electric capital participation upon treaty revision. Success would depend in part on Iwadare's ability to acquire for the new company a particular type of license, however, since selling telephone equipment to the government required a special permit before the necessary tenders could be submitted to MOC. Iwadare therefore approached an associate who held the requisite license, Maeda Takeshira, and the two agreed that Maeda would enter into the partnership with Iwadare in exchange for transferal of his public permit to the new firm. The American company agreed to these arrangements, and, on 31 August 1898, Iwadare and Maeda formally established Nippon Electric Limited Part-

The Door Ajar, 1899-1930

nership. With technical assistance provided by Western Electric advisors, the new firm began partial production of telephone equipment at a factory it had acquired from the financially troubled Miyoshi Electrical Manufacturing Company. Finally, on 17 July 1899-the very day the revised treaty between the United States and Japan took effect-Nippon Electric Company, Limited (NEC) was established as a joint-stock company, with Western Electric holding a 54-percent direct stake, and the remainder of the equity owned by Iwadare, Maeda, and a number of their associates. In one of the very first instances in modern history, Japanese and foreign capital had joined to found a business enterprise in Japan.41 Here again, the government had played a crucial role in promoting Western Electric's involvement with the Japanese market. Just as the first official Japanese mission to the United States had encouraged the company to export to Japan, so the second mission promoted Western Electric's decision to directly invest. Japanese government actions encouraged the investment decision in other ways as well. In addition to the promised 1899 capital liberalization, official plans to increase telephone equipment purchases and raise tariffs on imports also supported the American company's decision. Official involvement remained strong as the Japanese telephone industry expanded still more rapidly from the turn of the century. Twice before 1930, the government instituted national projects to expand the use and availability of the telephone. Modeled after the first such plan of 1896 but still more ambitious in its range, the government program of 1907 initially was funded by a Diet-approved budget of 20 million yen to be spent over a period of 10 ~ears.4~ The plan aimed to increase telephone subscribership by 95,000 customers, and to construct an additional 419 central telephone stations throughout the country. And, from 1916, the Diet approved 22.5 million yen for yet a third telephone expansion program, which sought to enlarge the phone system by 75,000 new subscribers and to add more than 32,000 kilometers of new toll lines. Indeed, even these figures understate the size of government support, for rising labor and materials costs pushed annual expenditures during this third plan to more than 20 million yen per y e ~ r . 4 ~

The Door Ajar, 1899-1930

These government policies created explosive growth in the Japanese telephone industry during the early 1900s. Although, by the close of the nineteenth century, the authorities had managed to establish a limited phone system for use by public officials, important businesses, and some wealthy individuals, during the first quarter of the twentieth century official support helped provide phone service to a far wider number of users. Thus, for example, in 1900 there were only 25 telephone exchanges serving about 19,000 customers, but just 11 years later more than 850 exchanges provided service to some 150,000 users throughout the country. Even during Japan's financially troubled early 1920s, the phone industry remained vigorous.44 Despite these gains, however, demand for telephones exceeded supply throughout the first decades of the new century. In 1918, for example, there were 90,000 unfilled applications for phone service on file in Tokyo alone. Annual government lotteries determined the assignment of new telephones, although an active secondary market controlled by phone brokers soon emerged as we11.45 'You folks don't know how lucky you are to have your own . . . telephone," wrote one American engineer resident in Japan in the early 1920s. "The cost of installing a telephone in Tokyo is about 1,800 yen ($900) at present. This is because of a shortage of equipment."46 Indeed, this engineer had no way of knowing it at the time, but the Great Kanto Earthquake which would'strike the central island of Honshu just months later would widen still further the gap between the demand for and availability of telephones in Japan. Western Electric-affiliated NEC benefited enormously from the government-sponsored phone boom. "The prospects in Japan are rather better than they are in any other section of the world in which we are doing business," wrote Thayer in 1908 to a colleague posted in Tokyo. "I hope that-results will come up to the prospects."47 Thayer was not to be disappointed. Government demand for telephones, cables, and switching equipment soared after the start of the second expansion plan, and again after the start of the third. Still more important from Western Electric's point of view, MOC regularly selected the products offered through the American company's local affiliate over those of the smaller but wholly domestically owned

The Door Ajar, 1899-1930

phone makers such as Oki and A n ~ ~ a kThus, a . ~ ~for example, NEC not only endured the depression of the early 1920s but actually prospered-"due mainly to the large volume of business it had accrued," according to the official NEC company history, "through the Japanese government's third telephone expansion program."49 Indeed, even during periods when MOC cut back on telephone demand, such as in the Russo-Japanese War years of 1904-1905, Army and Navy orders for communications equipment kept the U.S. affiliate "very busy."50 Official promotion of the American affiliate went beyond mere purchases of the company's equipment, however. Like its behavior towards many local companies entirely owned by Japanese interests, the government supported the placement of senior bureaucratic officials into the ranks of the Nippon company. In August 1919, for example, Dr. Oi Saitarb-who, after his trip to the United States in 1888, had worked his way up the ranks to become MOC's first Chief Engineer of Telephones and Telegraphs-left government service and became a member of NEC's Board of Directors. Similarly, MOC official Ohata Gen-ichirb resigned from the Ministry to join NEC in 1920 (and obtained the position of Managing Director six years later), as did engineers such as Niwa Yasujirb, who moved directly from MOC to the Japanese company in 1924.51These early instances of former government officials going to work for NEC provided the U.S. affiliate with invaluable contacts with the very officials who crafted and implemented the government's telephone policies. Thanks in part to official support such as this, NEC developed rapidly during its first quarter century. From a single factory obtained through the Miyoshi acquisition in 1898, NEC had grown to own and operate as many as 11 plants by 1930, with employment totaling some 1,400 workers.52 Moreover, the NEC operation provided Western Electric with unusually high returns from its Japanese business. Western Electric's President's Report for 1909 stated, for example, that the American company earned some 43 percent on its investment in Japan during that banner year.53 And internal firm data show that, for the 10-year period 1915-1924, Western Electric realized an average annual return on its Japanese investment of

The Door Ajar, 1899-1930

almost 20 percent-even after adjusting for losses from the 1923 Great Kanto Earthquake.54 The performance of this investment is also impressive in international terms: For the period 1918-1922, for example, Western Electric investment in all foreign locations yielded an annual return of 11 percent, but for Japan alone the figure stood at almost 25 percent.55 Yet Western Electric was not the only beneficiary of the NEC operation. The Japanese investors of the Nippon company, which, by 1930, had come to include the Sumitomo interests (see below), enjoyed immediate financial gains from their stake in the joint venture, and public- and private-sector subscribers benefited from the greater availability of advanced phone systems. At least as important a beneficiary, however, was Japanese industry, for the Nippon company acted as a critical link in the transfer of technology and knowhow from America to Japan. After the establishment of NEC, for example, Western Electric licensed many of its most basic telephone technologies to the Japanese company, and sent to Japan leading American engineers to instruct Japanese employees in their application. In addition, Western Electric regularly received NEC employees at its U.S. plants and laboratories, where they received instruction on the latest methods of telephone production. Indeed, NEC had absorbed so much American technology so quickly that the firm was producing virtually the entire Western Electric telephone apparatus in Japan just twelve years after its founding.56 The U.S. firm also trained NEC workers in Western systems of labor management, accounting, administration and other aspects of modern business management. As a result, through Western Electric the Nippon company introduced innovations which were, at least in the estimation of some, "quite significant in the history of Japanese industry, contributing greatly to the nation's modernization scheme."57 Japan had allowed an American multinational to enter and operate within its midst, but in return had gained not just foreign capital but also access to critically important foreign technologies and related knowhow.

The Door Ajar, 1899-1930 VICTOR TALKING MACHINE

Although a scattering of small, native firms operated in the early days of the Japanese ~honographindustry, most records sold domestically through the mid-1920s were imports, and a single, foreigncontrolled company manufactured virtually all phonographs made in Japan.58A few native concerns, located principally in Tokyo and Osaka, apparently counterfeited "disc talking machine records" even before World War I, but these firms remained relatively weak and technologically inferior to Western competition throughout the early decades of the new century.59The American-owned F. W. Horn Trading Company, on the other hand, had begun to sell records from abroad before the turn of the century. Strong domestic demand encouraged other foreign trading firms as well to import records-including the locally popular discs made by British Columbia-and soon these trading firms began to work out arrangements with Japanese retail outlets to sell foreign records in Tokyo, Osaka, and other parts of the country. A steady rise in imports led Horn to establish Japan-America Phonograph Manufacturing with a factory in Kawasaki completed in December 1908.60Two years later, Horn's Japan Phonograph Trading Company, originally set up to market the products of the manufacturing firm, took over this venture and engaged in the production of the Nipponola and other phonograph models in Japan.61By May 1925, Japan Phonograph Trading had established and consolidated under the name Amalgamated Phonograph a network of dealers in Kanto and Kansai.62 Half a world away two American engineers, Eldridge Johnson and Emile Berliner, had founded in September 1901 the Victor Talking Machine Company. Based in Camden, New Jersey, Victor was organized to manufacture and sell records, phonographs, and related accessories. The new company looked to international markets from the start. Victor and the Gramophone Company, a British firm which had earlier concluded a licensing accord with Victor, agreed to divide world markets between themselves that same year: The Gramophone Company could sell phonographs and records in Europe, the British Empire, Russia, and Japan; Victor could sell everywhere el~e.6~ The two firms settled on a new plan, however, on 25 June 1907: Victor

The Door Ajar, 1899-1930

now could conduct business in all territories between 30 and 170 degrees west longitude-including, to the East, Greenland, and, to the West, China, Japan and the Philippines-and the British concern, everywhere else.64 The international business of Victor grew rapidly. Its exports within the American hemisphere and to East Asia had become quite substantial by the end of its second decade, and in 1920 Victor acquired a controlling interest in the British Gramophone Company. When this new subsidiary embarked on an aggressive program of international expansion by setting up plants abroad during the 1920s, Victor, too, became a foreign direct investor. By 1926, the Gramophone Company had factories in seven countries outside Britain-but none in Japan-and Victor took an interest in them a11.65 Moreover, Victor itself began to establish enterprises abroad during this era and, by the late 1920s, its foreign manufacturing investments included plants in Canada, Argentina, Chile, and Brazi1.66 Radio Corporation of America (RCA) acquired Victor Talking Machine in 1929. Under a prior agreement with the British firm, Victor was not to sell its goods to Japan before the middle of 1907, but exports had in fact begun a number of years earlier.67 Victor technicians recorded on wax impressions the voices of several Japanese artists while on a trip to the Orient in 1902. They brought the impressions to New Jersey, produced records from them and exported the finished products back to Japan, the first phonograph records of Japanese music ever produced.68 Victor's export business to Japan soon took off. The F. W. Horn interests had begun to import Victor records in some quantity by 1904, but that business shifted to the British-American trading firm Sale & Frazar two years later when it gained exclusive agency rights to import and distribute Victor products in J a ~ a n . ~Before 9 long, goods produced by the New Jersey firm were carried by the famous Jnjiya music store on the Ginza, and by the mid-1910s retailers in Osaka, Kyoto, and elsewhere carried Victor products. The U.S. firm in 1916 characterized its business in Japan as "large and exceedingly valuable and profitable," and, as the Japanese economy boomed towards the end of World War I and the popularity of recorded music

The Door Ajar, 1899-1930

reached new heights, Victor's exports to Japan grew still further.70 Indeed, so large had the volume of business become that Sale & Frazar found it necessary to establish a separate phonograph division in 1920 just to handle Victor products. The Yokohama trading firm then set up a national system of licensed retail dealers in 1921, and the well-known "Victor Clubs'' already had begun to spring up before the Great Kanto Earthquake. Victor might well have gone on simply exporting to Japan had it not been for a change in Japanese public policy. It is true that, even before this policy change, a direct investment might have saved on transportation costs, sped up delivery times between the moment a Japanese artist's song was recorded and the appearance of the finished product in the domestic market, and perhaps have effected other savings as well. Yet Victor had managed to absorb these costs and still earn a good profit for many years. In the wake of the 1923 calamity, however, the Japanese government began to pass measures to encourage domestic manufacture of a variety of goods the nation previously had imported-and which now constituted a severe drain on foreign exchange needed to rebuild the economy. One such measure was the Law Concerning Import Taxes on Luxury Goods, which placed a prohibitive 100-percent tariff on phonographs and related accessories from 31 July 1924.71As a result, the American Victor and the British Columbia, which by now had become the two major foreign exporters of phonographs to Japan, realized they had to shift their strategies to remain competitive in that market. The British moved first. In 1927 Columbia acquired a controlling 59-percent interest in the Nipponophone Company, successor to the Japan Phonograph Trading Company, through a complicated series of transactions involving not only British Columbia but its American and German subsidiaries as well.72 The Japanese company, renamed Japan Columbia Phonograph in January 1928, began to manufacture Columbia products in Japan based largely on the technology of the British parent.7) A Columbia engineer sent over from England directed the redesign of the Kawasaki factory to fully modernize its production ~ystern.7~

The Door Ajar, 1899-1930

Victor Talking Machine chose to enter as a manufacturer in Japan that same year. D. T. Mitchell, head of the American company's Export Department, traveled to Japan in April 1927 and conducted an extensive examination of the domestic market, assisted by a member of the Yokohama importing agent.75Based on Mitchell's reports, Victor decided to establish a plant in Japan without delay. At first Victor sought to establish a joint venture with local capital through an association with Nitta Phonograph or another member of the weak but developing Japanese industry, but, when those efforts failed, the firm elected to go in alone.76 After managing to lease a tract of land in Yokohama, the New Jersey company registered the Victor Talking Machine Company of Japan (Nihon Bikutn Chikuonki) under the Japanese Commercial Code with an initial capitalization of 2 million yen (roughly $1 million) that September. Shortly thereafter, technicians and factory machinery arrived from America, and, on 30 December 1927, the plant began to produce Victor products.77 Once again, the Japanese government had been anything but obstructionist when an American company deliberated and then elected to establish a direct manufacturing investment in Japan. Indeed, in the case of Victor Talking Machine the national government practically compelled a direct-investment decision by erecting a tariff wall which threatened the American firm's entire Japanese business if it simply went on exporting to that market. Victor enjoyed rapidly expanding business and a phenomenal return on its investment during the years immediately following entry. In its early years of operation, the American subsidiary produced records of both Japanese and Western music, and its retail sales grew so quickly that there were some 2,000 stores which dealt only in Victor products by the turn of the decade.78 In early 1929, the firm became an American-Japanese joint venture when the American affiliate-at its own initiative-sold even proportions of 32 percent of its capital to the trading companies of each of two zaibatsu industrial groups, Mitsubishi and Sumitomo.79 Almost from its inception, the new venture turned a profit which reached some 40 to 50 percent on an annual basis at the time RCA acquired the parent Victor company

The Door Ajar, 1899-1930

in 1929.8O Business was so good that in December 1930 the subsidiary doubled its capitalization and opened a new plant in Yokohama to expand the range and volume of its products.81 To develop its Japanese business, Victor transferred from its New Jersey headquarters technologies, machinery, and know-how 'developed over years of experience in the ~honographindustry. Patents and trademarks were registered locally, specialized accounting methods instituted, and American Victor managers and engineers sent over to supervise the new operation.82 Just to manufacture the blank records to Victor standards required the proper "recipes" detailing the proportions, the grinding and sifting methods, and the proper pressing and drying techniques for the shellac, red clay, gum, flock, scrap, carbon black, bone black, and other raw material inputss3 The simple operation of mixing all these ingredients required the Engineering and Millwrights Department in Camden to develop special rotary mixers with the properly positioned right- and left-hand threads, gear wheels, and specially designed discharge doors. All this and more Victor transferred to its Japanese subsidiary. The new factory was a showpiece in modern phonograph- and record-manufacturing techniques. Victor managers in Yokohama and Camden meticulously planned every aspect of the new operation from the location of the wax department to the size of the boilers needed to produce adequate steam for the record presses to the precise number of square feet the dry kilns, grinding plants, and storage sheds would occupy on the plant floor. Much thought went into the number and type of woodworking implements required for the new record-cabinet division, the record-pressing equipment, and other needed equipment that would have to be shipped from New Jersey. Victor officials also coordinated the purchase-often directly from the Japanese manufacturing plants of Western companies-and installation of Babcock & Wilcox boilers, Otis elevators, Grinnel sprinkler systems, and other modern devices they had learned to integrate into their manufacturing ~ysterns.8~ The crowd of Japanese ministers, governors, and other officials at the opening of the new factory, by far the largest of its kind in Japan at the time, underlined what many described 2s the enormous "industrial significance" of the new venture in the modernizing Japanese economy.85

The Door Ajar, 1899-1930

Yet to operate the new factory required a sizable and knowledgeable work force, and for this Victor turned to the Japanese. Indeed, by mid-1932 there were just 14 foreign employees, all in supervisory positions; remaining posts were occupied entirely by the 541 Japanese employees, many of whom underwent extensive training to participate in Victor's advanced management and production ~ p e r a t i o n s . ~ ~ Victor Talking Machine, like Western Electric many years earlier, indeed had begun to prosper in Japan and, in so doing, had transferred advanced techniques which they then taught to native workers. Also like Western Electric, Victor found that the Japanese authorities had encouraged rather than impeded its efforts to invest. OTHER AMERICAN MULTINATIONALS Although Japanese government policies restricted foreign investment in some industrial sectors and specific firms even after the great changes of 1899, a number of American multinationals in addition to Western Electric and Victor Talking Machine managed to establish a direct presence in the Japanese market during the first three decades of the twentieth century. General Electric, for example, in 1905 established with ShibauraElectric (now Toshiba)the Tokyo Electric Company,to which the U.S. firm licensed technologies for the production in Japan of GE light bulbs. And again, in 1910, GE joint ventured with Shibaura, this time to set up ShibauraEngineering.87 American tire maker B. F. Goodrich in 1917acquired a controlling interest in YokohamaRubber, a joint venture with Baron Furukawa, a Japanese entrepreneur of great influence but with little expertise in tire manufacture. In exchange for this controlling interest, Goodrich invested capital and transferred substantial American technical expertise to the new venture.88 And, as we shall see, Ford and General Motors in the 1920s both established motorvehicle plants on the Japanese mainland, to which they committed substantial amounts of capital, technology, and other resources. The record of entry by American manufacturing companies in this era suggests generalizations about the types of U.S. firms that managed to invest, as well as the roles of Japanese government and business in their entry. Of total U.S. manufacturing investment in Japan in this period, American producers in the electrical and other machinery industries predominated.89 (See Table 2 for a partial list-

The Door Ajar, 1899-1930

TABLE 2 American Branch Factories in Japan, as of 1932 Japanese Firm Nippon Electric Tokyo Electric Shibaura Engineering Yokohama Rubber Japan Steel Products Ford Motor Japan Japan Hanovia Quartz Lamp General Motors Japan Victor Talking Machine Japan Tbyb Carrier Kbgyb Tbya Otis Elevator Mitsubishi Oil A.P. .Muning & Co.

U.S. Parent

Year Operations Commenced

International Telephone & Telegraph International General Electric International General Electric B.F. Goodrich Rubber Truscon Steel Products Ford Motor Hanovia Chemical General Motors Victor Talking Machine Carrier Engineering Otis Elevator Associated Oil A.P. Muning & Co.

Source: Adapted from a study of the U.S. Department of Commerce, RG 151, Box 46, "American Branch Factories in Japan." Notes: ITT acquired Western Electric's operations in Japan through its takeover of International Western Electric. No date is given for the commencement of operations of A.P. Muning & Co. Omitted from the above list is Japan Corn Products (US. Parent: Corn Products Refining; Year Operations Commenced: 1931), listed as a branch factory in the Department of Commerce data. This branch was located in Korea, a Japanese colony when the Commerce study was written. The list is incomplete: One clear omission, for example, is Libbey Owens, which by this time held a direct equity investment in Japan.

ing of American branch factories in Japan as of 1932.) In virtually every instance, these U.S. manufacturers possessed sophisticated technologies not then available to Japanese entrepreneurs. This same pattern emerges from the contemporary European experience. Significant numbers of British manufacturing firms, such as Vickers Armstrong, J & P Coats, Babcock & Wilcox, Dunlop Rubber, English Electric, and Columbia, also directly invested in Japan

The Door Ajar, 1899-1930

during this period, along with prominent multinationals from other European nations, such as Siemens of Germany, W i r Liquide of France, and Swedish Match of Sweden.90 Like its U.S. counterpart, European manufacturing FDI was concentrated in technologically advanced industries already well developed in the West, yet still relatively underdeveloped in Japan. (See Table 3 for an overview of FDI in Japan, by country and industry, as of 1931.) The role of the Japanese government with respect to United States investment in this era also suggests an overall pattern. Unlike earlier periods when Japanese officials opposed U.S. direct investment, after 1899 the government-at least with respect to those U.S. firms that did manage to enter-played a neutral or supportive role. Thus, for example, the authorities provided powerful motivations for the entry of both Western Electric and Victor Talking Machine and later, as we shall see, for the successful entries of American companies such as Ford and General Motors. Also, in many such ccsuccess"cases, powerful Japanese business interests supported the American entrants for reasons of their own. Management at Shibaura Electric, for example, encouraged General Electric to enter into their 1910 joint venture explicitly to gain access to GE technology. 'Western nations are more advanced than our country, and they are making progress at a great pace," observed a leading Shibaura manager at the time. "They have better equipment and many things to study"91 The trading firm of Mitsui & Co., on the other hand, sought to joint venture locally with foreign capital in the 1920s to compete with rival Japanese companies. By establishing joint manufacturing operations with foreign companies in Japan instead of simply importing the finished products of these companies, Mitsui managers reasoned, they could compete effectively against increasingly efficient Japanese producers protected by rising tariff walls.92 A number of other firms belonging to the great Japanese zaibatsu industrial combines similarly encouraged inflows of American and other foreign direct investment in the early twentieth century. (See Table 4.)

The Door Ajar, 1899-1930

Industry

United States

Great Britain

Germany

Other.

Total

Machine Equipment Electric Machinery Cotton Knitted Goods Records Automobiles Beverages Chemicals & Celluloid Rayon Steel & Iron Products Oil Movies Rubber Products Wool Yarn Confectionery Silk Paint Ice Manufacture Photographic Printing Paper Gas Glass Matches TOTALS Source: Adapted from a study of the Japan Ministry of Commerce and Industry, as cited in Gaimush6 (Ministry of Foreign Affairs), Nihon ni okerrr gaikoku shihon (Foreign capital in Japan), pp. 68-69.

The Door Ajar, 1899-1930

TABLE 4 Examples of Zaibatsu Participation in Japanese-ForeignJoint Ventures in Japan, 1899-1931 Zaibatsu Investor

Foreign Company

International General Electric; Eastern Union Investment Vickers Armstrong Babcock & Wilcox International Standard 2. Sumitomo Electric Westinghouse Electric International Eastern Union Investment; Frazier Trust; Hamilton Standard Propeller Libbey Owens Ford Glass LAir Liquide English Electric 3. Mitsubishi Westinghouse Electric International Tidewater Associated Oil Siemens 4. Furukawa Fuji Electric Westinghouse Electric International American Linoleum 5. Yamaguchi Telefunken Gesellschaft 6. Okuragumi fiir Drahtlose Telegraphie Dunlop Rubber 7. Dai Nihon Seitb National Cash Register 8. Nihon Chisso Bemberg A. G., I.G. Farben London Tin I.G. Farben 1. Mitsui

Japanese Company Tokyo Electric

Japan Steel Products Toyo Babcock Nippon Electric (NEC) Mitsubishi Electric Japan Instruments

Japan Glass Imperial Oxygen T6y6 Electric Mitsubishi Electric Mitsubishi Oil Fuji Electric Fuji Telecommunications Mitsubishi Electric Tokyo Linoleum Japan Telecommunications

Japan Dunlop Japan National Cash Register Asahi Bemberg Rayon Toy6 Tin Titan Industries

Source: Adapted from Japan Gaimush~(Ministry of Foreign Affairs), Nihon ni okeru gaikoku shihon (Foreign capital in Japan), pp. 77-78.

I

The Door Ajar, 1899-1930

CONCLUSIONS Japan's 1899 capital liberalization and other incentives encouraged numerous American multinationals to invest. The U.S. Department of Commerce estimated that, as a result, total stocks of American direct investment in Japan had increased from negligible amounts at the turn of the century to $60.7 million by 1929, of which roughly two-thirds was in man~facturing.9~ European firms, which accounted for most of the additional FDI in Japan not originating in the United States, also chose to invest in the era of the Door Ajar. The Ministry of Finance, whose data include FDI from all external sources, estimated total FDI in Japan at about $50 million in 1913, $72.5 million between 1919 and 1922, and $122.5 million in 1929.94Other estimates suggest similar trends towards increasing levels of foreign direct in~estment.~~ In comparative international terms, however, the amount of United States direct investment in Japan during this era remained small. Total U.S. direct investment abroad, for example, grew from an estimated $634.5 million in 1897 to $7.553 billion in 1929, yet Japan accounted for just 0.8 percent of the overall 1929 amount. Indeed, in 1929 Japan had received just 14 percent of total stocks of U.S. FDI in Asia. Foreign investment in Japan from all sources also appeared modest in comparison with, for example, FDI in China, where stocks of such investment in 1930 exceeded those in Japan by about a factor of 20.9~ In contrast to previous (and, as we shall see, succeeding) periods, Japanese restrictions during this era provide only a partial explanation at best for the paucity of United States direct investment. As in earlier periods, so in the early 1900s Japan did maintain some important foreign-investment restrictions: Public regulations included explicit industry- and firm-specific controls in several major industrial sectors. At the same time, however, the authorities often acted to encourage American investments. Japan needed foreign technology and foreign capital, and, during these early years of its modernization process, the leadership was prepared to tolerate even certain direct investments by Western firms to accomplish the larger goal of industrial development.

The Door Ajar, 1899-1930

Additional factors furnish other important explanations for the levels of U.S. FDI in Japan during this period. The limited size of the Japanese market, for example, significantly affected American investor interest. Indeed, that market was supported by an economy which only recently had begun to industrialize, and therefore offered relatively few attractions to many U.S. firms. In addition, Japan had gained a generally negative image overseas as a host for foreign investment in the aftermath of literally centuries of severe investment restrictions. Also in contrast to later periods, available evidence suggests that the Japanese government often played a key role in determining the treatment of American multinational investment in the era of the Door Ajar. The active and positive influence of the authorities in the successful entries of Western Electric and Victor Talking Machine stand as two important cases in point. The precise role of Japanese business, however, remains unclear. When foreign companies sought to establish major positions in industries with little or no Japanese presence, such foreign companies encountered no significant domestic business opposition. It remains less clear, however, whether or not local businesses effectively opposed foreign investment in fields where they already had attained a relatively weighty presence. Whatever the case, the record suggests that government influence was strong at least in those cases where domestic industry was not.

TWO

The Sliding Door, 1930-1940

At least two broad trends in Japan's development during the 1930s created major incentives for American multinationals to invest or otherwise participate in the Japanese market. First, Japan's economy achieved truly remarkable levels of industrialization and economic growth in the prewar decade. Although Japan, in comparison with many countries in the West, was a late developer and still operated relatively backward and inefficient industries in the second tier of its dual economy, the nation had made remarkable advances in the aircraft, chemical, electrical, light machinery, motor vehicle, textile, and other industries well before the start of World War 11.' Already, in 1936, the American business magazine Forbes spoke of Japan's "industrial ascendancy" and asked in a prominent headline, "Can U.S. Industry Meet Japanese Challenge?" This rapid and broad-based industrialization contributed to impressive rates of economic growth. Indeed, even including the ill effects of the Depression-from which

The Sliding Door, 1930-1940

the nation recovered more quickly than the United States and most other Western countries-Japan's gross national product grew at more than 5 percent per year for the 1930s as a whole.3 Territorial expansion coincided with Japan's rapid industrialization. O n 18 September 1931, units of the Japanese Kwantung Army provoked an attack on a railway in Manchuria controlled by their compatriots. On this pretext, Japanese forces advanced against Chinese soldiers in Mukden and secured control over the entire region by early 1932. The state of Manchukuo was established that March. Japan next occupied important Chinese coastal cities and inland regions following the onset of the Sino-Japanese conflict in 1937. The sphere of Japanese influence and control abroad continued to expand through the end of the decade. These additions to Japanese-controlled territories abroad, which already included Korea and Taiwan, colonized years earlier, opened up new markets for companies doing business in Japan-companies well-positioned to contribute to the growth and solidification of the Greater East Asia Co-Prosperity Sphere. Such new, overseas markets, in turn, rendered more attractive an American presence in an economy already experiencing rapid growth at home. These developments created powerful incentives for American companies to invest or otherwise participate in this dynamic and expanding economy. Japan's imposition of heavy tariffs on numerous manufactured and other goods in this period motivated U.S. firms to consider, in particular, direct investments (or, conceivably, technology licensing) rather than exports as the best means to participate in the prewar Japanese economy. Local operations, of course, would enable American companies to operate inside Japan's formidable and still rising tariff walls. Despite these incentives, however, Japanese controls placed increasing restrictions on foreign direct investment. Such restrictions, though generally applied through the public sector, often were strongly influenced by the private sector as well. Controls included both economywide and industry-specific measures, which grew in number and intensity throughout the 1930s. That is why this period, which lasted from roughly 1930to 1940,can be described metaphorically as aSliding Door.

The Sliding Door, 1930-1940

Capital controls rendered United States direct investment increasingly difficult. Most American firms already operating in Japan, such as Ford and General Motors, therefore chose to withdraw. Indeed, only certain firms that, in general, either possessed assets not available to Japanese entrepreneurs-including, most notably, access to foreign oil-or managed to establish or maintain local companies in concert with powerful Japanese business interests, largely managed to avoid these onerous investment restrictions.

JAPANESE RESTRICTIONS MOTIVES Rising Japanese nationalism and militarism in large part motivated the authorities to impose increasingly severe controls over foreign investors. These twin sentiments intensified as Japan became more involved on the Chinese mainland, and grew particularly strong following the start of the Sino-JapaneseWar in 1937. Nationalism assumed in Japanas in many other countries in the West and Asia-strongly anti-foreign strains as the prewar decade progressed. Indeed, by 1937,Japan's conservative Ministry of Education had published its well-known text entitled 7%e Fundamentals of Our National Polity, which reflected this growing xenophobia in some quarters. In this text, the Ministry connected the "various ideological and social evils of present-day Japan" with the rapid and relatively uncritical acceptance of "many aspects of European and American culture, systems, and learning."4 Japanese extremists even began to speak of an epic confrontation between a Japanese-led Asia and the great powers of the W e ~ t Many .~ Japanese clearly did not subscribe to statements such as these, yet the growth of anti-foreign sentiment was undeniable. This rising nationalism fed growing opposition to foreign investment. Popular magazines and books reflected this developing trend. An article on foreign investment in the February 1932 issue of the influential monthly Bungei shunjii, for example, began with a reference to the latest "foreign capital threat" posed by NestlC's plans to establish a venture in Hokkaido to produce condensed milk. (The

The Sliding Door, 1930-1940

project was defeated, the article reported, when four Japanese competitors jointly established a new company to produce and sell condensed milk in Hokkaido in reaction to the Nestlk effort.)6 Some Japanese critics went still further. One particularly extreme critic, in a 1935 book entitled Foreign Capital and Japanese Industry: Speaking of the Control of Capital, even closed his analysis of foreign investment with this warning: In the current era, capital is a kind of power. It is the power to control industry, to control the market, even to control politics. . . . Happily for Japan, measures by earlier politicians to import foreign capital have enabled us to develop to where we are today, but there remains the danger that, with one false step, Japanese industry will fall under the control of foreign capitaland once begun, there is no turning back. . . . Unfortunately, domestic capital has not yet gained complete control of the electric, automobile, and petroleum industries. I therefore wish to arouse the concern of government officials, industrialists, and politicians, and must add that, even in terms of national policy, this is an issue fraught with significance.7

In addition to rising nationalism, growing militarism in prewar Japan also encouraged opposition to at least some forms of foreign investment. For example, leaders of the armed forces in Japan, as elsewhere, argued that native interests should control defense-related industries to guarantee national security8 In addition, those who wanted to strengthen the nation's military sought to increase allocations of precious foreign exchange to import war materiel and related goods-even if such expenditures forced the government to limit foreign-exchange allocationsto many local subsidiaries of foreign companies. Nor were these sentiments confined to the armed forces: The growth of militarism also apparently influenced overall Japanese attitudes towards foreign capital. "The domestic current of the times, controlled by a war psychology, developed into movements to exclude foreign goods and to promote domestic production" in the 1930s, wrote one influential Japanese professor just after the war. As a result, this observer reported, "purely foreign enterprises [in Japan] experienced a variety of restrictions."9 In addition to rising nationalism and militarism in the government

The Sliding Door, 1930-1940

and elsewhere, sectors of Japanese industry also pressed the authorities to increase controls over foreign investment. In particular, some domestic business groups which had learned to produce goods independent of foreign companies appealed for limits on FDI in their industries. Entrepreneurs in the Japanese sewing-machine industry, for example, began to lobby for restrictions on the local Singer operation after these entrepreneurs had absorbed foreign techniques and could efficiently produce sewing machines without foreign assistance.1° Similar pressures soon confronted a major General Electric investment in Japan as well. GE, as previously noted, initially had established Tokyo Electric as a joint venture with Shibaura in 1905, and had subsequently transferred to this venture light-bulb technologies avidly sought by Shibaura. Based on that technology, Tokyo Electric by the 1930s had developed to the point where it no longer needed assistance from the American company. The Japanese affiliate then began to press the government to force GE to withdraw from the joint enterprise." Nor were these efforts by Japanese entrepreneurs aimed solely at American companies. M i r Liquide, the only major French company that undertook a direct manufacturing investment in Japan before World War 11, held a strong position in the local oxygen industry on the basis of its advanced technologies. By the late 1920s, however, numerous Japanese competitors had arisen to compete with the French firm. These local competitors together formed the Association of Japanese Oxygen Producers in 1930 and applied growing pressure on the authorities to restrict the French investment in the prewar decade.12 In each of these instances, the foreign company had entered Japan strong in technological or other assets not then available to local business. Once Japanese entrepreneurs had absorbed adequately the strengths of the outsider, however, these entrepreneurs became convinced that they could provide for the needs of the domestic economy without foreign participation. By appealing to Japan's rising nationalism, these private interests sought-and often gained-public protection from their overseas competitors. Such a movement, as we shall see, soon developed in the motor-vehicle industry as well.

The Sliding Door, 1930-1940

This increasing nationalism and militarism, together with pressures from a variety of local business interests, led many Japanese officials to seek stricter controls over foreign capital. There was, however, clearly a range of official opinion on the matter. For example, particularly conservative elements in the bureaucracy-whose power grew as the decade progressed-sought the wholesale ouster of foreign companies in a number of important industries. More liberal and internationally minded Japanese oficials, such as Finance Minister Takahashi Korekiyo, on the other hand, professed a more tolerant attitude. Yet even relatively liberal officials such as Takahashi favored increased controls on FDI in the 1930s. Indeed, Takahashi expressed himself quite frankly on the matter in a confidential conversation in June 1932 with the director of a major U.S. manufacturing subsidiary in Japan. In that conversation, Takahashi said that he would "welcome" foreign direct investment-"provided that the investment of such capital is permanent (not requiring repayment)" and "provided that the industries in which the capital is invested are under the joint control of Japanese and foreigners."13 The Finance Minister therefore "advised" American and other foreign direct investors to operate locally only in concert with Japanese capital, and further suggested that such joint ventures include Japanese directors in proportion to the relative capital contribution of the Japanese side. At the same time, however, he completely opposed foreign loans for Japanese industry, because, as he explained, "People smile when borrowing and bite when repaying."14 It is evidence of Japan's accelerating tilt towards the more conservative forces in the government that Takahashi was assassinated by right-wing militarists in February 1936. METHODS

Japan pursued a variety of methods increasingly to restrict inward direct investment during the 1930s. These methods included controls imposed directly on the foreign investor, together with actions to assist domestic firms, which placed foreign-controlled subsidiaries at a competitive disadvantage. Japan's international agreements suggested that the Japanese econmy would remain relatively open to American and other foreign

The Sliding Door, 1930-1940

investors during the 1930s. The 1911 Treaty of Commerce and Navigation between the United States and Japan, for example, continued to guarantee American business extensive rights to invest and otherwise participate in the Japanese economy throughout the prewar decade. Similar accords between Japan and the other principal Western powers also remained in effect throughout the period. Yet domestic Japanese laws and other measures placed increasing obstacles in the way of the overseas investor. Some of these measures directly limited foreigners' investment access. Imposition of laws limiting foreign investment, in specific companies or industries is a case in point.15 In earlier years, as noted above, legislation empowered the government to curtail or prevent FDI in state financial institutions, shipping, communications concerns, and other fields in which nations commonly limit foreign ownership. In the 1930s, however, the number of these firm- or industry-specific restrictions in Japan greatly increased. The Diet began to enact a new round of laws designed to limit FDI shortly after the start of the new decade. In 1933, for example, for' eign ownership of stock in Japan Iron Manufacturing was restricted by law to prevent the possibility of foreign control of that company: "Stocks can be owned only by Japanese subjects," Article I11 of the law stated in part, "or juridical persons which have been established the majority of whose votes do not belong to foreigners or foreign juridical persons."16 In 1934, the Petroleum Industry Law was adopted, which effectively empowered the authorities to limit the operations of foreign-controlled oil companies in Japan." In 1936, the Diet passed the Automobile Manufacturing Industry Law, which required firms to obtain a government license to produce more than a specified number of automobiles per year in Japan.18 Only jointstock companies owned by Japanese individuals, or Japanese juridical persons more than half of whose members were Japanese citizens or Japanese subjects, were eligible to receive such licenses.19 Motorvehicle firms operating in Japan before the law took effect could continue to operate, but only under restrictions. (See below.) Many more laws were enacted during the latter half of the decade which specifically limited the degree of foreign ownership in at least

The Sliding Door, 1930-1940

6 other Japanese industries. In 1937, the year when Japan and China went to war, foreign control of firms engaged in artificial petroleum manufacture was prohibited. Article I1 of the relevant law stated: "Any person who wishes to engage in artificial petroleum manufacThe law went on ture shall obtain approval from the go~ernment."~~ to specify many of the same restrictions on foreigners as contained in the Automobile Manufacturing Industry Law. The government then adopted, in 1938, the Machine Tool Manufacturing Industry Law and the Aircraft Manufacturing Industry Law which placed similar restrictions on FDI in these two industries.21 And, in 1939, the Diet incorporated language into two new laws, the Shipbuilding Industry Law and the Light Metal Manufacturing Industry Law, which prevented foreign control in those industries as we11.22 Similar measures were enacted in other fields as the Pacific War approached.23 In addition to these industry-specific measures, the authorities instituted foreign-exchange controls which both constrained the operations of American companies already in Japan and discouraged new investors from entering.24 Although foreign-exchange laws would become perhaps the single most important method of controlling FDI in the prewar era, not until 1932 did Japan enact a single law specifically designed to regulate foreign-exchange transactions.25 To stem a major outflow of capital, which continued despite the imposition of a gold embargo the previous December, the Diet passed the Capital Outflow Prevention Law in June 1932.26Under this measure, the government could block foreign exchange and numerous other international financial transactions "if the Government deems it necessary to regulate capital movements between Japan and other countries due to domestic or overseas conditions," according to Article 1.27 The measure obviously carried important implications for the foreign investor in Japan. In particular, the government had obtained in principle-and could enforce through implementing orders-the ability to restrict imports, remittances abroad, and other foreign currency transactions by foreign investors in Japan through the exchange-control mechanism.28 Nor would the imposition of such regulatory powers, of course, encourage other foreign companies to contemplate direct investments in Japan.

The Sliding Door, 1930-1940

'

The government enacted the following year the critically important Foreign Exchange Control Law (FECL), which incorporated the provisions of the 1932 legislation into a broader framework of regulation.29 Like its predecessor, the 1933 FECL accorded the authorities wide latitude to "prohibit or restrict" transactions in foreign currency, remittances to foreign countries, and a host of other financial transactions critical to the foreign investor in Japan.30 These foreign-exchange control measures, drafted in vague and general language, afforded the authorities tremendous discretion over actual enforcement. Indeed, not even the ordinances issued under these laws greatly clarified the specific powers and policies of the government. MOF ordinances issued in connection with the 1932 Capital Outflow Prevention Law, for example, did little more than specify that permission of the Minister of Finance was necessary to purchase foreign exchange or foreign remittances.31 The initial 1933 FECL-related ordinances were similarly vague.32MOF issued a number of other ordinances which progressively broadened its authority to control foreign exchange and other transactions under the 1933 FECL. In particular, the Ministry, in January 1937, issued a measure which required the Minister's permission for all payments of imported goods, and soon thereafter modified existing legislation which broadened MOF's authority to control even those international transactions that did not involve foreign exchange.33 The government therefore had gained broad economic powers in the prewar decade, and could apply these powers to restrict the actions of the American investor. New measures also increased government power to regulate, through quotas and tariffs, the imports of American firms already operating in Japan. In 1937, for example, the government gained the right to directly control foreign trade upon passage of the Law Concerning Emergency Dispositions Relative to Imports and Exports.j4 Article I of that law defined the extremely broad powers vested in the government to control Japan's international trade: "The Government, should it deem it necessary for ensuring the working of the national economy in relation to the China Affair may," the first article read, ': . . specify commodities and restrict or prohibit the expor-

The Sliding Door, 1930-1940

tation or importation thereof."35 The application of this law could severely restrict the operations of U.S. and other foreign investors. An MCI ordinance issued under this measure set out the literally hundreds of items-including some vital to the operation of foreignaffiliated companies in Japan-designated for such import and export control. Restricted goods included everything from plants and twigs to telephones, phonographs and "vehicles and parts thereof not otherwise provided for."36 Yet even these measures did not exhaust the range of growing FDI control^.^' In the absence of specific and clearly stated criteria relating to foreign-exchange and trade regulation (or, in modern parlance, lacking "transparency"), public "policy" amounted to the sum of the outcomes of individual negotiations between foreign direct investors and relevant ministries. A survey of 6 United States direct investors interviewed by the American Consulate in Yokohama towards the end of the decade reveals patterns in the actual implementation of ordinances relating to foreign-exchange and import-control reg~1ation.s.~~ In general terms, the authorities applied such controls on American investors in Japan with increasing vigor as the decade progressed. As a result, by the late 1930s, according to the local U.S. Consulate, officers of many American companies had begun to "complain bitterly" of their "inability to obtain definite decisions from departmental officials on their import programs for essential items."39 In 1938, for example, Singer Sewing Machine could not even gain approval for a single import license of $18,000 to replace machine parts damaged in a flood in Kobe.40The American firm decided to liquidate its Japanese operation shortly thereafter. Nor was Singer alone. A whole range of U.S. firms in Japan, such as the local B.F. Goodrich subsidiary, found it increasingly difficult to obtain exchange permits to remit profits and dividends as the decade progressed. Finally, in mid-1938, MOF apparently decided to prohibit in principle any further licenses for such transactions by foreign c~mpanies.~l Of course, the imposition of these exchange controls both restricted the activities of American multinationals already in Japan and acted as a deterrent to those who might consider entry. Moreover, and quite apart from formal, government-enacted restric-

The Sliding Door, 1930-1940

tions on FDI, militarists, ultranationalists, and others began to harass American companies in Japan through extra-legal means. In September 1932, for example, an employee of the Osaka branch of National City Bank of New York took pictures of Osaka for a brochure the firm was preparing on the overseas operations of the bank. Despite the fact that pictures of these same scenes were readily available in area retail shops, the local gendarmerie accused the bank worker of espionage.42 The following March, a Japanese director of the American-controlled Japan Steel Products Company persuaded the Japanese office staff to strike until the U.S. directors and managers resigned and turned over control to Japanese interests.43 That April, there was agitation against General Electric's interests in Japan. "Certain Japanese interests," wrote U.S. Ambassador Joseph Grew, "feel that [a number of basic G.E. patents governing the manufacture of electric light bulbs] are strangling the Japanese electriclight-bulb industry, and a mass meeting was held in Tokyo to demonstrate against the General Electric Company." And, later in the decade, the Japanese Consulate General in Manchuria charged that the local branch of Singer Sewing Machine operated as part of an information network hostile to Japanese interests.44 Other American companies began to experience difficulties as we11.45 This harassment, at least in the mind of Ambassador Grew, clearly influenced American business attitudes towards investment in Japan. "I desire respectfully to invite the Department's attention to the following cases in which branches of American firms in Japan, or the Japanese subsidiaries of American corporations, have experienced unusual difficulties in conducting their normal business during the past eighteen months," Grew wrote to U.S. Secretary of State Cordell Hull in May 1933. Upon enumerating 8 separate examples of such difficulties, which included strikes, boycotts, expropriation of property, and accusations of military espionage, Grew therefore concluded that few, if any, U.S. companies already in Japan would seek to augment their local operations and that other potential investors might be discouraged until such harassment had ceased? In addition to restrictions imposed directly on the U.S. investor,

The Sliding Door, 1930-1940

other measures indirectly constrained local American operations by providing assistance to competing Japanese firms. The government's "Buy Japaneseyycampaign is a case in point. In their drive for greater economic efficiency following the onset of the Depression, the authorities inaugurated the Industrial Rationalization Movement. To realize the goals of the movement, a Cabinet-level council created the Temporary Industry Rationality Bureau (TIRB) under the stewardship of the Ministry of Commerce and Industry (MCI) in early 1930.47 In addition to bodies set up to introduce scientific management, improve sales and production techniques, and other measures, the TIRB established the Committee on Encouragement of Consumption of Home Products.48 Messages went out to provincial governors to "vigorously" promote Japanese goods; mass meetings were held; exhibitions were organized to compare domestic and foreignmade products; and advertisements with slogans such as Zehi kokusan (By all means [buy our] countryrs] goods!) began to appear in print.@ The Chief of the Commerce Bureau of the Ministry of Foreign Affairs, at pains to defend the work of the Committee in front of the foreign diplomatic corps in Kobe, argued somewhat incongruously that, despite the need for the "Government and people of Japan [to recognize] the necessity of encouraging the use of [certain] home products. . . .[t]he movement in Japan is anything but a boycott against foreign goods."50 This assurance, however, provided little comfort to U.S. companies trying to sell goods for which Japanese entrepreneurs had already created adequate substitutes. The effects of the Industrial Rationalization Movement on the sales of foreign-affiliated firms in Japan are difficult to measure, but were certainly negative. Indications are that Japanese consumers did indeed shift purchasing patterns towards domestic goods that could substitute for foreign-made products.51 Clearly some foreign capitalaffiliated importing and sales firms, such as Singer's Japanese distribution network, lost business as a result. There is, in addition, evidence that certain groups extended the campaign to include boycotting goods manufactured in local plants in which there was substantial foreign investment, although here again the effects of these efforts are hard to quantify.52

The Sliding Door, 1930-1940 In addition, the government assisted Japanese-controlled companies at the expense of foreign affiliates through a variety of subsidies accorded native-controlled industry. Although there are no figures on the total amount of such assistance during the prewar decade, the sources and methods of subsidization were numerous and varied. For example, the central government during the 1930s granted funding to several bureaucratic departments, including the Ministries of Commerce and Industry, Communications, Army, and Navy to support the growth and development of local companies. In addition, domestic industry received aid from prefectural, city, town, and village governments. The methods of subsidization were equally diverse. Japanese firms were accorded low-interest loans through government-supported banks, national and local tax relief, preferential access to and price advantages on government purchases, export indemnities, reduced rates on land and water transportation fees, government guarantees of earnings over a specified number of years, and free'technical advice and assistance as well as outright grants.53 Direct or indirect, industry-specific or general, multiplying Japanese restrictions on FDI, together with various measures designed to benefit native companies, created an increasingly inhospitable environment for American and other foreign investors in the era of the Sliding Door.54

AMER

M U L T I N A T I O N A L STRATEGIES FORD AND GENERAL MOTORS

BACKGROUND: INITIAL CONTACTS. In 1900, there was no Japanese

automobile industry. The very first car ~roduceddomestically was a 2-cylinder vehicle powered by steam and assembled from imported parts in 1902 by the Automobile Trading Company.55 Two years later, Yamaba Torao put together a steam-driven automobile made completely from domestic parts, and, in 1907, the Automobile Trading Company, renamed Tokyo Automobile Works, manufactured the first motor vehicle in Japan that ran on gasoline. Scattered attempts at domestic manufacture continued prior to

The Sliding Door, 1930-1940

World War I. The Japanese Army, for example, which took an interest in trucks during the 1904-1905 Russo-Japanese War and soon began to look into their manufacture, managed to produce a truck prototype shortly after the end of that conflict.56 The entrepreneur Hashimoto Masujira later (1911) established the Kaishin Company and, based on his studies of the combustion engine in an American factory, produced the 12-horsepowerDAT the following year.57And, in 1916, Tokyo Gas and Electric established an automotive division and started to explore production methods.58 Yet, in all of these ventures, quality was poor and volume remained minuscule. Official support for the manufacture of domestic vehicles increased after World War I, which convinced the government that motorized transportation had truly critical applications in armed conflict. On 23 March 1918, the authorities therefore promulgated the Military Vehicles Subsidy Law to support "manufacturers or owners of motor vehicles suitable for military use" but limited to "Imperial subjects whose factories and vehicles exist within Japan, Korea, Taiwan, Sakhalin, Manchuria or the area belonging to the Manchurian Railroad."59 The measure provided, among other things, modest financial assistance to qualified manufacturers for each vehicle produced, together with purchasing and maintenance subsidies. Yet this official support for motor-vehicle production in Japan had achieved only modest results by the end of the 1920s. The automobile divisions of Tokyo Gas and Electric and Ishikawajima Shipbuilding, together with DAT Automobile Manufacturing, all received subsidies to produce trucks under the 1918 law, yet none achieved significant volume during the period.60Other attempts at local manufacture proved at least as disappointing. Hakuyasha Motors was established in 1921, for example, but was dissolved within five years. Jitsuya Automobile Company produced the 2-cylinder Gorham designed by an American engineer but failed to develop into a major producer.61 Despite the ongoing efforts of these and other domestic companies, however, Japanese motor-vehicle manufacturers remained minor actors in the domestic market before the 1930s. (See Table 5.) The government placed few restraints on foreign participation in the Japanese motor-vehicle market during the early part of the cen-

The Sliding Door, 1930-1940

TABLE 5 The Supply of Motor Vehicles in Japan, 1916-1935

Year

Domestically- CBU ~~~~lKD ImportedKnocked-down Kits (KD) Imports Imports Ford Japan GM Japan Kyaritsu Made

Source: Udagawa Masaru, "The Prewar Automobile Industry and American Manufacturers," in Jupan Eurbook of Business History: 1985, p. 82. Notes: CBU stands for "completely built-up units." Total KD imports do not exactly equal the sum of the KD imports breakdown for every year, but, according to Udagawa, accurately correspond to the recorded statistics.

tury. No laws or regulations, for example, restricted direct investment in Japan by foreign manufacturers. And there was a relatively modest 35-percent tariff on completely assembled vehicle imports, together with a 25-percent tariff on imported automobile parts.62 With few public controls and an extremely weak domestic industry, major foreign automakers dominated the Japanese market. Im-

The Sliding Door, 1930-1940

ports came first. The very first foreign vehicle arrived through Yokohama sometime between 1897 and 1899, and, gradually, foreign trading houses based there and in Kobe built up the import trade.63 Andrews and George, Nickle, and other foreign concerns handled most of the early business, which initially was limited to importing a small number of cars as sample display models or for the use of the trading firms themselves, but which gradually expanded in volume and customer base.64 Japanese retailers began to set up shops in the Ginza and elsewhere early in the new century, selling foreign cars in the domestic market which they purchased from the trading houses.65 Later, Japanese firms themselves began directly to import motor vehicles. The volume and sources of imported motor vehicles steadily increased. There were just 218 imports in 1916, but this grew to an annual average of well over 1,000 from 1918 through 1920. (See Table 6.) British, French, and Italian manufacturers generally accounted for most of the European imports during these years. In 1921, the most popular European import was the Fiat, followed by the Renault, the Citroen, the British Bean, and the Wol~eley.~~ Yet it was the United States that dominated the field. American manufacturers occupied a central position in the Japanese auto-import trade virtually from the outset, and, when World War I increased Japanese demand yet prevented European manufacturers from raising their exports, U.S. market share soared. Thus, in 1920, for example, the U.S. Department of Commerce reported that American exports accounted for more than 95 percent of all motor vehicles imported into Japan in terms of number, and 93 percent in terms of value.67 Limited Japanese competition in a burgeoning market, together with few local government controls, encouraged United States officials by the early 1920s to speak with growing enthusiasm about the Japanese market for American motor vehicles. William Irvine, the U.S. Trade Commissioner, for example, toured Japan in 1922 and reported that "the Japanese market is worth cultivating and deserves the careful attention of present and future exporter^."^^ And, in an address to the Export Managers' Convention of the ( U S ) National Automobile Chamber of Commerce the following year, this same

The Sliding Door, 1930-1940

TABLE 6 Automobiles Imported into Japan, by Country of Origin, 1914-1921

Year

United States

Great Britain

France

Italy

Germany

Other Countries

Source: Adapted from United States Department of Commerce, Bureau of Foreign and Domestic Commerce, Japan as an Automotive Market, Special Agents Series No. 217, 1922, p. 40.

official stated that Japan was of "increasing importanceyyas a "good automotive export rnarket."69 There had been attempts at home production, Irvine said, but "manufacturing costs in Japan are such that the Japanese manufacturer cannot build cars to compete in other countries," so that "for some years to come there need be no fear of Japanese motor rnanufacturing."70 These and other conditions soon would invite a commitment in Japan beyond mere exporting by a major American manufacturer. FORD. The Ford Motor Company, established in 1903, entered the world automobile market with the export of its Model A that same year. Foreign investment began almost immediately, with the inauguration in 1904 of a Canadian vehicle-assembly plant in which it took a 51-percent interest. Ford's adoption of the low-cost mass-production system, together with its introduction (in 1908) of the popular Model T and other factors, encouraged the American company to establish local operations beyond the North American continent. Ford's ownership strategy for its overseas plants, however, differed in at least one important respect from its strategy for Canada: The American parent adopted a policy to create only wholly Ford-owned

The Sliding Door, 1930-1940

plants outside North America. By 1909, the American company had opened branch offices in France, England, and ~ustralia,and soon would create full-fledged companies in foreign markets to produce vehicles abroad. The Manchester, England, plant started operations in 1911, and, in response to the export surge created by World War I, Ford began to build assembly plants in other parts of Europe, South America, and elsewhere. By 1924, Ford had opened branches or foreign subsidiaries in 17 countries, at which time it already engaged in local assembly in 11 locations and manufacture in 2-yet none were in Asia.71 Ford's involvement with Japan began early and developed steadily. The Model B arrived in Japan in 1905, and the S a n k y ~Trading Company became Japan's first Ford dealer when it obtained import and sales rights from Detroit in 1909.72Yet S a n k y ~primarily a dealer in pharmaceutical goods with little expertise in the auto business and no confidence in the future of Ford, had barely managed to sell the 6 Fords it had initially imported after almost two years of ccefforts."73 Ford therefore transferred import and sales rights for Japan (and the rest of East Asia) to the trading firm Sale & Frazar before the end of 1910.74 The new arrangement proved more successful. Sale & Frazar, with main offices in New York and Yokohama and branches in six Japanese cities and in Korea, Manchuria, and Taiwan, demonstrated greater resolve than had S a n k y ~in furthering Ford's export business to Japan. The trading firm imported the American cars through its Yokohama base and granted sales rights to Japanese subagencies.75 One initial difficulty encountered in promoting business was resistance by Japanese wedded to less developed modes of transportationwhen the trading firm first sent a Ford taxi to Tokyo Station, according to one account, "the ricksha boys beat up the drivery'-but imports quickly increased nonetheless76 At least as early as April 1911, Ford's Export Shipping Department sent out an entire shipment of Model T's to Yokohama, and, by the early 1 9 2 0 ~they ~ had become a familiar sight to Japanese living in the major cities.77 The Great Kanto Earthquake of 1 September 1923 struck the center of Japan, but its aftershocks reverberated all the way to Detroit.

The Sliding Door, 1930-1940

The disaster destroyed railroad and trolley lines and other vital links in Japan's transportation system in the Kanto area, which included Tokyo, Yokohama, and other major cities. Japan suddenly needed large numbers of motor vehicles to carry food and medicine, battle fires, reestablish communications networks, and provide public transportation.78 "Japan has endured a stroke of misfortune which has challenged the sympathy and friendship of the whole world," wrote Henry Ford to Sale & Frazar's Kobe ofice on 28 September.79 "For myself, I believe that the world is to be given another splendid exhibition of Japanese initiative and wisdom in the recovery and restoration of the stricken cities."80 Shortly after the quake, the Electric Bureau of the City of Tokyo ordered 1,000 truck chassis from Ford, which arrived in Yokohama the following January and were quickly converted for use as busses in the Tokyo area.81 The large order grabbed Ford's attention. Robert Roberge, head of the Export Department, sailed to Japan in the fall of 1924 with two assistants to assess the market and Ford's place within it.g2 Roberge immediately contacted Sale & Frazar, and traveled throughout the Japanese Empire with representatives of the trading firm to gain a first-hand look at local conditions. The excursion convinced him that Ford should embark on a new strategy. The Japanese market had developed rapidly, Roberge felt, and its potential appeared highly attractive. But when he learned more about Sale & Frazar's distribution and sales system for Ford vehicles, Roberge did not like what he found: "Their personnel were nice people, but they hadn't the faintest conception of an e6cient business operation, at least by Ford Motor Company standards," Roberge wrote to headquarters. "Dealers as we know them do not exist. We must start from the very beginning to develop a real organi~ation."~~ Indeed, despite the rise in orders following the earthquake, Roberge still felt that "in relation to the potential . . . we weren't getting sufficient volume."84 To fully exploit this potential, Roberge advised Ford to go beyond mere export and sales to local assembly. He premised this advice on two major factors. For one thing, he noted, shipping vehicles from America in unassembled, or "knocked-down," kits would save on ocean freight charges. And, for another, Roberge pointed out, there

The Sliding Door, 1930-1940

would be a slight reduction on import duties for "knocked-downyy kits from the 35-percent rate charged for complete, fully assembled cars.85 Roberge therefore devised a new plan and got Detroit's approval to implement it. First, he terminated the exclusive agency arrangement with Sale & Frazar (although he allowed the agency to continue to market Ford cars in a number of Japanese cities). Next, he established a new sales organization, and filled staffing needs in part by hiring Sale & Frazar personnel who had worked on the Ford acc0unt.8~ And finally, Roberge began work to establish a Ford assembly plant in Japan to build up vehicles imported in knocked-down form.87 Finding a site for the new Ford plant, however, was no easy task. Roberge felt that the great port near Tokyo, Japan's largest market, was the logical choice-"Yokohama is the best location," he wrote to the head office in late 1924-but he wanted to lease instead of buy until the operation proved itself, and he could not find a suitable rental property there.88 He then went to Kobe, which also had substantial port facilities and proximity to Japan's other great market, but, he later recalled, "I couldn't find anything whatever in Kobe."89 Finally, Roberge arranged to lease some vacant waterfront property from the Yokohama Dock Company, which was constructing warships for the Japanese Navy, and persuaded this company to erect some sheds where Ford could begin its assembly work. O n 19 December 1924, Roberge cabled Detroit that the lease had been signed.90 When Benjamin Kopf arrived in Japan early the next spring, the new Ford operation had already made considerable headway. Kopf, an Argentinian who had been working for Ford in South America, did not know the slightest thing about Japan when he received orders from Detroit to become the first manager of the new company. Roberge had already incorporated Ford Japan as a wholly owned subsidiary, on 17 February 1925, with an initial investment of about $1.5 million.91 Detroit then granted its Japanese subsidiary exclusive rights to manufacture and sell Ford vehicles throughout the Japanese Empire.92The Yokohama Dock Company was finishing the corrugated iron sheds on the leased 10-acre site as Kopf arrived, and it was estimated that the new factory could turn out 30 cars a day in a

The Sliding Door, 1930-1940

single &hour shift.93 Ford was set to open its first Asian assembly plant. Japanese officials were deeply suspicious of Ford's intentions to enter Japan as a direct investor. Agents under the Inspector General of the National Police gathered detailed intelligence about the movements and designs of Ford personnel in the country from well before Ford had even registered its local company.94O n 30 August 1925, the head of the National Police sent out a secret order to all prefectural governors to report on the activities of any Ford organizations in their respective territories. The order warned that Ford sought to monopolize the domestic automobile market, and that, in the event of an emergency, the foreign-controlled company might disrupt the transportation network. Moreover, the police directive stated that Ford might well spy on Japan, so it was imperative that officials closely monitor all Ford activities. Governors from across the nation-from Aichi, Fukuoka, Hyogo, Nagasaki, Shimane, and elsewhere-reported to the Home Affairs, Foreign Affairs, and Army Ministers and to local representatives of the national bureaucracy based on their investigations.95 Governor Nakagawa of Osaka wrote in confidence on 12 October 1926-less than six months before he would personally preside over the opening of the GM factory in his own region-that he, too, sensed the dangers suggested in the order from the National Police, and that from then on he would keep a close watch on Ford activities in his area.96 Other officials expressed themselves in a similar vein, although Governor Yamagata of Hyogo prefecture reported that the sentiments of some of his constituents went a bit further: "Ford has tremendous financial power, and through this they oppress peoples everywhere," Yamagata quoted one local businessman as proclaiming in a confidential cable to the Minister of Foreign Affairs. "I believe that the devil hand (mushu)of the United States is now reaching into our country, and I am in fact extremely angry."97 Despite these suspicions and reservations, however, the government did not interfere with Ford's activities. Ford concluded its contract with the Yokohama Dock Company without incident, Roberge managed to incorporate the new subsidiary and register it with the

The Sliding Door, 1930-1940

local courts in Yokohama with a minimum of complications, and the American company experienced no other unusual difficulties. Indeed, Roberge did not experience a single instance when government officials tried to obstruct the American company as he set up the auto plant in Japan-they just watched very ~ a r e f u l l y . ~ ~ Established in 1908, General Motors competed with Ford for overseas markets almost from its birth. At first Ford sales abroad far exceeded those of GM, but by 1920 GM was shipping about half the Ford volume, and the rate of growth of GM's overseas business far outstripped that of its domestic operation.99 Like Ford, GM first established foreign subsidiaries in Canada and then England. Yet it was not until 1924 that General Motors embarked on an aggressive policy of direct investments in foreign assembly plants.lOOGM set up an assembly facility in Copenhagen and then one in London that year; similar operations were established in Brazil, Belgium, Argentina, and Australia in 1925; and new plants were added in Egypt, Germany, Spain, South Africa, France, Uruguay, and New Zealand in 1926.1°1 In Japan, General Motors cars were much less popular than Fords ,before the Great Kanto Earthquake. Even in the large cities, Chevrolets were a very rare sight before the mid-1920s, though Buicks enjoyed some limited popularity102 Mitsui & Co. had entered into a contract with GM's Export Company in April 1912 to import and sell Buicks in Japan.103 The contract gave Mitsui the exclusive agency for Buicks in Japan and Korea, and the Japanese trading firm soon began to market limited numbers of Buicks through a subagency arrangement similar to that undertaken by Sale & Frazar on behalf of Ford.lo4 But Mitsui misread the market. Seeing no future in the automobile, the firm chose not to renew its agreement with GM when the 1912 contract expired some two years later.lo5Instead, Mitsui & Co. offered the GM account to Yanase Chijtar6, who in 1914 ran the automotive division of the trading company's head ofices in Tokyo.106 With financial help from Mitsui, this employee founded Yanase Automobile Company and, in time, gained exclusive sales rights from GENERAL MOTORS.

The Sliding Door, 1930-1940

General Motors for the three major lines of GM cars-Buick, Cadillac, and Chevrolet.107 When the great earthquake struck in 1923, Yanase and his wife were in the middle of a business trip to Europe. No sooner had Yanase heard of the calamity than he booked passage on the first ship to New York. Anticipating the enormous Japanese demand for motor vehicles in the wake of the disaster, he went straight to GM's Export Company and ordered over 1,000 Buick cars and Chevrolet trucks.108 General Motors hesitated to fill the order, for in earlier years Yanase's orders had numbered in the hundreds, not the thousands, and Yanase "had to argue a lot" with GM, according to one account, to convince them to fill the order.109 GM finally obliged, and Yanase made a killing. The sudden surge in exports to Japan undoubtedly registered in the minds of the GM export people, but an event of still greater importance convinced them to seriously consider establishing an assembly plant in Japan: Ford's decision to enter Japan and the possibility that GM might lose the market altogether to its American archrival. Thus, in April 1925-just as the Ford venture in Yokohama was nearing completion-G. K. Howard of the Export Company went to Japan professing GM's desire to set up its own assembly plant there.110 Through his contacts with the American Embassy, Howard met a number of prominent Japanese industrialists and politicians, and in his suite at the Imperial Hotel he received offers of assistance and cooperation from powerful figures who traveled from the Kansai region and elsewhere to speak with him.111 Deciding on a location for the new plant proved relatively easy. Officials from Yokohama, still recovering from the devastation of the 1923 calamity and eager to attract still more foreign investment, made plain their desire for GM to set up a plant there. But Howard inclined towards Osaka. This was due in part to Ford's already having chosen Yokohama, yet there was a more important reason: Osaka 0%cials offered GM special incentives to invest in their region. There were two parts to the offer: First, GM would be exempt from all city taxes for four years; and second, the authorities would assist GM in providing facilities for its new factory."2 In addition, Osaka was close to the large and modern Kobe port facilities, stood at the center

The Sliding Door, 1930-1940

of a major concentration of Japanese industry, and was situated nearer than Yokohama to the Chinese mainland, which meant that exporting to China would be quicker and cheaper.113 Officials in GM Overseas Operations (GMOO) in New York had made a definite decision to start an assembly operation in Japan by the middle of 1926, and to accept Osaka's offer of assistance.l14 Howard returned to Japan in October with some 10 assistants to set up the plant and take care of related business matters. The group decided to sublease a parcel of reclaimed land along the waterfront from the Japan Cotton Company (Nihon Menka), which was renting the site from the Osaka government but had no immediate use for it.115 Like Ford, GM sought greater control over sales and distribution as it prepared to begin assembly operations, although in GM's case the break with its former Japanese agent came about because Yanase wanted either to retain exclusive sales rights for the entire domestic market or to have none at all. He got the latter.116 General Motors Japan became a corporation under Japanese law on 17 January 1927 with an initial capitalization equal to about $1.5 million, roughly the same amount as the Ford investment. Also like Ford, the local subsidiary was completely owned by the parent corporation.l17 The Japanese government had blocked neither the Ford nor the GM entry. It is true that at least some public officials had suspected Ford's motives in setting up a local plant, yet no impediments had been placed in Ford's way. Indeed, at least one part of Japanese officialdom-the authorities in Osaka, backed up by a variety of local business interests-openly and warmly embraced the new General Motors venture and did everything they could to encourage GM to establish an enterprise in their locale.118 And once established, no new public measures limited the development of either subsidiary for the rest of the 1920s. Free from government restraint, Ford and General Motors dominated the Japanese motor-vehicle industry throughout the decade, and beyond.119 Indeed, the two U.S. companies together controlled more than 95 percent of the local market by 1930.lZ0By contrast, rarely during these years did Japanese manufacturers hold more than 5 percent of the domestic market, and in many years that share fell

The Sliding Door, 1930-1940

below 2 percent. (See Table 5.) By the close of the decade, each of the American companies had increased its capitalization, and each had set up a finance subsidiary in Japan to facilitate sales. In addition, Ford canceled its original Yokohama lease agreement and bought a 9.2-acre site at Koyasu, also on the waterfront near Yokohama, where it built a modern factory in 1929 to increase output and convert to production of the Model A.lZ1Large market share contributed to high profitability: GM, for example, earned on average more than 25 percent per year on its Japanese investment between 1927 and 1931.122 Rapid technology transfer and active encouragement of local suppliers followed the American firms' entry. The two companies, for example, introduced into Japan the assembly-line method of vehicle production, together with the tools, machines, and know-how to run their local operations.123 And, once imported, Ford and GM quickly taught these techniques to Japanese managers and workmen. "The daily business in the [GM] office in Osaka is conducted by Japanese," reported Barron's in 1928, "and native workmen are carrying on jobs under native foremen."l24 The two U.S. companies also worked aggressively to develop local sources of supply for a vast range of motor-vehicle parts. Ford Japan, for example, shared blueprints and other technical information with local companies to help Japanese entrepreneurs develop requisite skills. These entrepreneurs, who included Aikawa Yoshisuke, the hard-driving leader of the Nissan (originally, Nihon Sangy~)industrial group, rapidly developed their skills under American tutelage and would soon become major suppliers to the local Ford and GM plants.lZ5 DISINVESTMENT: T H E 1930s GOVERNMENTPOLICIES: PHASE ONE. There were two principal stages

of Japanese government policy towards the automobile industry during the 1930s-the later stage providing even more support for domestic producers and placing still tighter controls on the foreign automakers than the earlier one-and each time GM Japan and Ford Japan were compelled to react. The military authorities gained increasing power over automobile policy in the prewar decade, yet Japanese business interests wielded influence over official actions even

The Sliding Door, 1930-1940

during this extraordinary ascendancy of the military in policymaking circles. The first stage began shortly after 1930 when the Committee to Promote Domestic Industry had formulated a reply to the question MCI had charged it with answering in 1929: 'What is the right method to establish a domestic automobile industryY126 With this reply, the government set up the Survey Council for the Establishment of the Automobile Industry, and charged it with designing a specific set of policies to develop the Japanese industry. Council members included, in addition to academics and public officials, the presidents of the three leading Japanese vehicle manufacturers of the time-Ishikawajima Shipbuilding, Tokyo Gas and Electric, and DAT Automobile Man~facturing.'~' Based on the recommendations of the Survey Council, the government adopted two series of measures to respond to the automobile challenge. First, officials promoted the domestic industry through subsidization of a new standard model for trucks and busses. The model would be produced by native manufacturers through a consolidation of the three major Japanese automakers represented on the Council. This standard model, originally dubbed the Fuji but later changed to the Isuzu, was a medium-sized vehicle completed in March 1933.128 DAT Automobile Manufacturing and Ishikawajima Automobile Works merged that same month to form Automobile Industries, joined by Tokyo Gas and Electric's Automobile Division four years later. The authorities provided additional assistance to domestic makers through measures such as preferential tax rates, indirect subsidies, and a waiver of the requirement that drivers obtain an operating license-a difficult and time-consuming task-for the small, domestic models.129 Second, the government began to increase controls over the local Ford and GM operations. In June 1932, for example, the authorities raised the ad valorem tariff rate for imported auto parts to 40 percent.I3O In addition, some key officials started to pressure the American subsidiaries to sell part of their domestic operations to native interests. Just before returning to Detroit in mid-1932 to advise headquarters on future policy for Japan and Manchuria, for example, GM

.

The Sliding Door, 1930-1940

Japan Managing Director Richard May visited Finance Minister Takahashi Korekiyo to seek the Ministry's views on foreign investment in Japan in general and on GM's wholly owned subsidiary in particular. Take in some Japanese capital, Takahashi advised, and place the firm under joint Japanese-foreign control by electing Japanese directors to the company board.131 This Japanese official said that he, personally, felt that goods produced by such joint enterprises ought to be considered domestic goods, even though the growth of the "Buy Japan" campaign had led some government agencies to discriminate against these goods when placing official orders. The Finance Minister also advised that any further GM shipments to Manchuria should come from the American company's Japanese plant rather than its Chinese branch in Shanghai, and that all shipping should be handled by Japanese firms.132More conservative Japanese officials, centered in the Army Ministry and elsewhere, however, made unspecified threats about the future of the local Ford and GM subsidiaries if foreign capital continued to control these two auto operations. FORD AND GM STRATEGIES: PHASE ONE. The American automobile

companies initially responded to these rising Japanese pressures in contrasting ways. General Motors, which already had successfully operated a major overseas joint venture in Germany-in late 1928, GM had acquired 80 percent of the Adam Ope1 operation-felt that, in the present circumstances, it had little choice but to heed the Japanese Finance Minister's advice.133 Graeme K. Howard, General Manager of GM's Export Division, explained to May, following the latter's visit to Detroit, the corporation's reasons for considering a shift from a wholly GM-owned Japanese subsidiary to a joint venture with local capital. These reasons included rising nationalism and militarism in Japan, together with past Japanese business successes in developing native-controlled industries independent of foreign manufacturers. "From our viewpoint," he concluded, "it is better to keep half of 'something of real value' than to sit on 100% of 'something of dwindling or no value.'"l34 Howard and other GM managers therefore directed the Japanese subsidiary to find domestic partners. Seek "participation of local Japanese interests," GM Japan was instructed,

The Sliding Door, 1930-1940

"through the ownership [by such interests] of a substantial pan of the capital stock and a consequent voice in the management of the affairs of the GM's first attempt to combine with Japanese capital met with a rebuff, but this initial effort attracted the attention of another domestic group which proved more interested in forging joint ties. In mid1932, General Motors informed MCI that it would be willing to participate in the planned consolidation of the domestic automotive industry.l3 The Ministry, however, did not invite GM to participate in this planned combination. Yet the overture by the U.S. carmaker impressed Aikawa Yoshisuke, head of the Nissan group. Aikawa was determined to develop a domestic automotive manufacturing company and had long felt that a combination with one of the large American carmakers was the best way to acquire necessary technologies.l3' Having already gained significant experience in the industry as a parts supplier to Ford Japan, Aikawa decided to initiate talks with GM about a possible joint ~ e n t u r e . 1 ~ ~ General Motors and Nissan negotiated over the following years their possible cooperation in motor-vehicle manufacture in Japan. The central issue in the first round of talks, which involved a plan for cross-ownership through reciprocal capital increases in GM Japan and a fledgling Nissan auto subsidiary, boiled down to control. Both GM and Nissan by 1933 had agreed to exchange shares in their respective subsidiaries, but GM wanted to limit the arrangement to the transfer of 49 percent of GM Japan stock in exchange for 49 percent of the stock in the Nissan subsidiary. Aikawa, however, held out for majority control of the U.S. subsidiary, and suggested that he would press the Japanese government to provide favorable treatment to GM Japan only if he obtained such control:

My company is not interested in buying shares of your Company in the ordinary sense of investment. What interests my Company and myself is the establishment of [a] motor car industry in Japan on a sound economic basis. As your Company is also interested in the same subject and prepared for its nationalization so as to enjoy the same privileges as a strictly Japanese compaay, I thought the combination of your Company and mine is

The Sliding Door, 1930-1940 the best way of attaining the common end. I therefore proposed that m y

Company should subscribe for an increase of capital of your Company at par value while m y Company and rnysev would exert our influence and our effortsfor enabling your Company to enjoy the same privileges as a Japanese Company. . . . if your Company need not transfer its majority shares to Japanese in order to enjoy the same privileges as a strictly Japanese company, then there would [be] no value in our participation. .

Aikawa further argued that pressures from the military and other quarters made him vulnerable to charges that he had not acted in Japan's best interests should he not be able to secure majority control of GM Japan. Finally, General Motors agreed to relinquish control of its Japanese subsidiary, but a new obstacle quickly appeared. Under the terms of the draft contract, signed in April 1934, there would be an immediate exchange by the two parent organizations of 49 percent of the stock of each subsidiary. Moreover, Nissan could acquire an additional 2 percent of the American subsidiary 5 years later, provided that the Japanese government afforded GM Japan treatment equal to what purely Japanese-owned auto companies would enjoy in the interim.140 The final hurdle was government acceptance. O n 1 May, Aikawa consulted with MOF Foreign Exchange Bureau head Aoki to ask whether the Finance Ministry would grant the foreign-exchange permits to allow GM to transfer to New York the necessary funds to clinch the deal.141 Following consultations, Aikawa received informal assurances not only from Aoki but from the Factory Bureau Chief of MCI as well.142 The Army Ministry, however, did not greet the GM-Nissan proposal with enthusiasm.143 To gain the Army's approval, Aikawa told GM, the American company would have to turn over 51 percent of its local subsidiary to Nissan immediately after the contract came into force, to agree to permit GM Japan instead of the U.S. parent to own the proffered 49 percent of the Nissan subsidiary, and to other conditions. General Motors agreed to the necessary changes in October 1934, but the Army then added the further condition that Nissan obtain the right to buy back the 49 percent of its shares which wou1.d be transferred to GM after the agreement had gone into effect.144

The Sliding Door, 1930-1940

After the Army had rejected yet another GM-Nissan proposal on 25 October and it had thus become clear that the necessary exchange permits might be held up, the two companies ended their talks.145 GM and Nissan were back at the negotiating table within three months, however, for General Motors feared more than ever that the military's determination to nationalize the automobile industry might completely destroy its Japanese business. GM proposed that the two sides take up the last proposal and try once again to gain official approval, but this time Aikawa insisted instead on a complete merger of the two Japanese subsidiaries.146 To this suggestion the American company agreed in principle after receiving guarantees from the Vice-Minister of Commerce and Industry that the joint enterprise would be "treated completely the same, without discrimination, as a purely Japanese Yet, when representatives of the two companies sat down to work out a concrete agreement, Aikawa pushed for still more concessions. This, together with the growing power of the military in government circles, caused GM to wonder if any reasonable arrangement with Nissan would be in its best interests after all. GM hesitated-but then agreed, in July 1935-to a merger arrangement whereby Nissan would completely absorb GM Japan in exchange for 49-percent GM ownership of the Japanese automaker and a relatively modest cash payment. This the U.S. company accepted after an Aikawa assistant had explained that "this is the final opportunity for any foreign interest to actively engage in the automotive industry in this country," that GM should accept a lower valuation for its Japanese subsidiary than during the earlier negotiations because of the threat of further government action against GM in Japan in the absence of an accord with Nissan, and that the prospective connection with Nissan "is really a sort of valuable 'intangiblesy[sic]," for only through such an association could a foreign automaker hope to gain government acceptance as a domestic manufacturer.148 By early 1936, however, the increasingly hostile Japanese climate for foreign automakers convinced GM to terminate merger talks with Nissan.149 Ford, on the other hand, stood defiant. In the face of the new government policies and the threat of still greater public controls

The Sliding Door, 1930-1940

over foreign automakers, Ford Japan General Manager Kopf was convinced that his company had to move aggressively to expand in order to survive: "The only way for us to retain this important market," he wrote from Yokohama, "is to take timely steps to manufacture locally."~50Kopf therefore proposed in Dearborn during the summer of 1934 that Ford buy a large tract of land in Yokohama and establish a fully integrated automobile-manufacturing operation in Japan without delay.151 Politics more than economics encouraged Kopf in his thinking: "The manufacturing facilities [are] needed for protection and not because manufacturing is economically justified at the present time. We want . . . the facilities for safeguarding our interests in case prohibitive duties or quotas should be imposed."l5* Kopf believed he had before him a striking example of what might happen to the foreign carmakers if they made the same mistake he believed the foreign oil companies in Japan had just committed. In March 1934, the Diet had passed the Petroleum Industry Law (see above), and, when the authorities enforced its provisions from that June, it seemed that they would favor companies with domestic refining capabilities over those without.153 "Not to go ahead now," Kopf feared in 1935, "might mean that eventually we would find ourselves in the same position as Standard Oil and the Shell interests, who thought they had a firm grip on this market and refused to erect refineries."l54 Besides, Kopf argued, still in 1935, "The economic history of the past few decades shows that common sense has always prevailed in Japan and with the leaders the country has I see no reason to doubt that sane policies will be pursued in the future."l55 Detroit gave its okay and Kopf began to look for a piece of land. The Ford Japan manager found a vacant 82-acre plot owned by the City of Yokohama near the original Ford assembly plant.156 Arrangements for the sale were going smoothly when the Army learned of them in the spring of 1935-and immediately moved to block the sale: "To sell the city's reclaimed land to Ford and assist a foreign country at this time," said an Army official, "is to sabotage domestic manufacturing of automobiles."~57 The local authorities suddenly refused to continue discussion of the proposed sale, yet gave no reason for their refusal.158

The Sliding Door, 1930-1940

Kopf then located a 91-acre site at Tsurumi, on the Yokohama waterfront, which was owned by Tokyo Bay Reclamation, a subsidiary of the powerful Asano zaibatsu.159 The two sides came to an agreement in principle that April.160 Nationalist groups with close ties to the military, such as the Joint Union of Yokohama Patriotic Organizations, however, demanded that the sale not go through: Such a transaction, the Union argued, "cannot be ignored from the standpoint of Japan's industrial policy" nor in considering the overall "safety of the nation."l61 The Army did indeed attempt to block this sale as well, but backed down after direct intervention by the U.S. Embassy, and, in July, Ford and Asano signed a formal agreement.162 ''Ford will build factories and provide technology," the Asano interests stated in defending their sale of land to the American company. "Even if war breaks out, they cannot take the factories back to America."l63 Ford now pressed ahead with its manufacturing plans, and sought official approval for its proposed project. Kopf brought over a top engineer from Detroit and hired a local architect to design the new factory.164 By the spring of 1936, plans were drawn up for a machine shop, a new assembly plant, a warehouse, an office building, a powerhouse, and a 600-foot dock.165 TO carry out its plans, however, Ford first had to submit applications to the authorities in Kanagawa prefecture for a building permit and a license to use the structure to produce automobiles-"standard procedure," according to Kopf-before they could start construction.166 Army pressure backed up by local motor-vehicle interests, however, finally defeated the Ford strategy. The applications from Ford Japan were in the hands of the authorities by early June 1936, and for the next three and a half months Japanese officials visited the American company and asked numerous and highly detailed questions about the proposed expansion. Yet government permission was not forthcoming. "[Wle can't allow you to build," Kopf was told by public officials. 'We want to protect Japanese industry."l67 The Army finally prevailed in internal government debates to force the denial, but domestic business critically affected the government's decision. Specifically, Nissan's Aikawa assured the Army and other ministries that he could manufacture an automobile to meet the nation's mili-

The Sliding Door, 1930-1940

tary and commercial needs in short order, and therefore pressed the authorities to turn down the Ford applications. "Aikawa.. . was responsible for the blocking of the project," at least in the view of Ford Japan head Kopf. "He had convinced the government that he could build a The initial strategies of both GM and Ford had met with failure. The authorities adopted a still more ambitious plan for Japanese motor-vehicle production in the middle of the decade, and once again domestic business played an influential role in the policymaking process. The Army lobbied more intensively than ever for the development of a native industry to support, in particular, its growing military demand for trucks and other vehicles to use on the Chinese mainland. In addition, the MCI now saw an opportunity to further its own longstanding desire to promote a Japanese motor-vehicle industry by using the pretext of national defense to assist native companies at the expense of foreign ~ompetitors.1~~ Japanese manufacturers, for their part, influenced the timing and character of new control legislation. Nissan's Aikawa, for example, applied increasing pressure on the government to support and protect his and other Japanese-controlled auto companies from the middle of the decade, and presented ambitious production targets to motivate the authorities to provide such support and protection at an earIy date.170 In addition, Toyota, which, like Nissan, had entered the auto industry in the early 1930s, presented a long-range development plan for the manufacture of trucks and cars to supply military needs.171 Government voices calling for policies to support the domestic industry grew steadily stronger, largely for reasons related to nationalism and militarism. Still, the domestic industry itself helped to shape the nature of those policies. Nissan seems to have played an especially important role in the policy process. The ability of that carmaker to influence policy derived from at least two major factors. First, as earlier noted, Aikawa had established close ties to the Army, which viewed the development of Nissan as a critical part of its strategy to establish a national motorGOVERNMENT POLICIES: PHASE TWO.

The Sliding Door, 1930-1940

vehicle industry. Indeed, the Army's dependence led Ford's Kopf flatly to warn Dearborn that "The Army [is] influenced by Aikawa of Nissan."l72 Second, the Ministry of Commerce and Industry directly relied on Aikawa for information and advice about the development of the industry. Indeed, according to a ranking MCI official charged with automobile policy when the government was considering new control legislation, Aikawa acted as a counselor to MCI on the development of automotive p01icy.l~~ The increasing confidence of Nissan and Toyota stemmed in large part from the policies and practices of Ford Japan and GM Japan. The two U.S. auto subsidiaries purposefully had stimulated the development of an extraordinary range of Japanese companies to provide the parts and other supplies they sought to purchase locally. As a consequence, Japanese companies by the mid-1930s produced for the two U.S. automakers tires, batteries and other electrical goods, tools, chassis components, body materials, paint, glass, truck wheels, springs, and a host of other (See Tables 7, 8.) Indeed, so eager were Ford Japan and GM Japan to develop local sources of supply that they already had begun to turn over, at nominal fees, detailed specifications of desired parts to Japanese producers.175 These parts suppliers now provided an invaluable infrastructure for Nissan and Toyota. Moreover, as noted earlier, Nissan itself had received critical support in its early development efforts owing to its supply relationship with Ford. Once his new venture became capable of producing its own vehicles, however, Aikawa abruptly cut off all supplies to his erstwhile American customer and teacher.176 The American subsidiaries also proved themselves valuable training grounds for Japanese managers and workers in the developing native industry. Ford Japan and GM Japan, for example, instructed young Japanese eager to gain experience in sales, advertising, management, production, and virtually every other aspect of the automobile business. Kamiya Shbtarb, for example, had begun to work for GM Japan in 1928 and soon proved himself effective in sales and advertising based on GM marketing techniques.177 But when Toyoda Sakichi offered him the top sales position in the new Japanese auto company, Kamiya quickly accepted, taking with him copies of all the

The Sliding Door, 1930-1940

TABLE 7 Domestic Suppliers of Ford Japan and GM Japan, as of 1935 Domestic Supplier

Type of Good(s)

I. FORD JAPAN A. Tires and Other Rubber Products 1. Dunlop Rubber (Far East) 2. Yokohama Rubber 3. Bridgestone Tire

Tires, Tubes Tires, Tubes, Radiator Hoses, Fan Belts Tires, Tubes

B. Batteries and Other Electrical Parts 1. Mitsui & Co. 2. okura Trading 3. Shibaura Works 4. Taa Electrical Works, Kokusan Industries 5. Tokyo Electric 6. Kyasan Works 7. Nishino Works 8. Morita Trading

Batteries N

Generators, Electrical Motors Ignition Coils Electric Bulbs Tail lights, Electric Horns Interior Lights Electric Wires

C. Miscellaneous Accessories and Tools 1. Tokyo Wheel Works 2. Sugiyama Works 3. Kyasan Works 4. Kokura Automobile Bonnet Works 5. Nissan Automobile 6. Keihin Steel Works 7. Anzen Motors

Bumpers Tire Covers Tools Tool Bags Tools N

Grease Guns and Related Implements

D. Chassis Components 1. Tokyo Wheel Works 2. Japan S.K.F. 3. Nissan Motor 4. Imperial Spring Works, Daido Electric Steel Works 5. Mitsui & Co. 6. Nishimori Trading

Wheel Parts, Frame Parts Bearings Parts Springs Wooden parts Air Cleaners

The Sliding Door, 1930-1940

TABLE 7 (Continued) Domestic Supplier

Type of Good(s)

E. Body Materials 1. Inoue Textile 2. Hattori Belt 3. Dai Nihon Spring Works 4. Izumi Works

5. Hasegawa Trading 6. Kobari, Branch No. Two

Textile Belts Seat Springs Seat Springs Interior Trim Materials, Seat Springs, Cotton Glass Soldering Materials

11. GENERAL MOTORS A. Tires and Other Rubber Products 1. Dunlop Rubber (Far East) 2. Yokohama Rubber 3. Bridgestone

4. Onishi Rubber Tmding

Tires, Horns Tires, Fan Belts Tires Small Rubber Products

B. Interior Accessory Materials 1. Takashimaya Clothing Store 2. Japan Seal 3. Tachikawa Wool Works 4. Osaka Wool 5. Shimada Audio Shop

Interior Accessory Materials 11

I1

N

N

I1

I1

I1

N

I1

N

N

I1

C. Batteries and Electrical Goods 1. Yuasa Battery 2. Nihon Battery 3. Kanagawa Electric 4. Iwayama Trading

Batteries 11

Tail Lamp Switches N

I1

11

D. Miscellaneous Tools 1. Miyamoto Tomisaburo 2. Otsuka Works 3. Omori Horn Works 4. Kurokawa Horn Works 5. Akamatsu Works

Manual Horns N

I1

I1

I1

I1

I1

Automobile Jacks

The Sliding Door, 1930-1940

TABLE 7 (Continued) Domestic Supplier

Type of Good(s)

D. Miscellaneous Tools (Continued) 6. Sugiyama Works 7. Ongashima Works 8. Kodama Trading 9. Okitsu Works 10. Anzen Motor 11. Tanaka Seizo Trading 12. Tamai Nameplate Works

Tire Covers Small Tools N

11

Manual Pumps Grease Guns Windshield Wipers Nameplates

E. Chassis components 1. Nittb Works

Springs I1

2. Shibaura Spring Works

3. Imperial Spring Works 4. Japan Forging and Casting Works 5. Tokyo Wheel Works 6 . Nakajima Trading 7. It6 Works 8. Urya Trading

Chassis Springs Chassis Components Truck Wheels Brake Parts It

11

N

I1

F. Body Materials 1. Kybwa Leather 2. Maruzen Glass 3. Kuwata Glass 4. Japan Paper Industries 5. Nakayama Weaving 6. Tsuzuki Trading 7. Mori Trading 8. Sanwa Cotton 9. Hebikusa Trading 10. Osaka Felt Works 11. Kbkan Trading 12. Asahi Works 13. Dai Nihon Celluloid

Artificial Leather Window Glass 11

N

Cardboard Cotton Cloth Hemp Pads Cotton Pads I1

N

N

I1

Felt Pads Seat Springs I1

I1

Celluloid

The Sliding Door, 1930-1940

TABLE 7 (Continued) Domestic Supplier

Type of Good(s)

G. Paint Materials and Other Factory Supplies 1. Kawakami Paint Material Works 2. Kansai Paint 3. Japan Paint 4. It6 Hisanosuke Trading 5. Narukawa Works 6. Rising Sun Petroleum 7. Standard Vacuum Oil 8. Japan Oil 9. Taishb Chemical 10. Konishi Trading 11. Kitamura Trading 12. Okada Trading 13. Settsu Refuse 14. Sawaki Trading 15. Matsuki Trading 16. Nisshin Works 17. Osaka Oxygen 18. imperial Oxygen 19. Umemoto Trading 20. Nikka Veneer 21. Aida Trading 22. Yokohama Rubber 23. Dunlop Rubber (Far East) 24. Mitsui & Co. 25. Yamashita Mining 26. Kamimura C h ~ b e Trading i

Chassis Paint Paint Materials and Lacquer N

11

I1

N

Soldering Materials 11

I1

Gasoline and Petroleum Gasoline and Lubricant Oils Heavy Grade Oil Acetone Alcohol 11

Caustic Soda Cotton Filler 11

I1

Sheep Leather Wipes Rubber Tape Oxygen Carbides Nails Glue Textile Filler Rubber Glue It

I!

Coal N

Grinding Materials

Source: T~ashaSangy6sh6, Kogane fishitnu shi kizcishiyy~(Materials donated by Mr. Kogane Yoshitem).

GM sales records in his offices. These he brought to Toyota, where he applied GM's lessons with great success in his new j0b.1'8 Toyota and Nissan recruited increasing numbers of Japanese from Ford Japan and GM Japan as the local firms developed.179 (See Table 9.) Growing private-sector influence, together with increasing nation-

The Sliding Door, 1930-1940

TABLE 8 Local Purchasing of Production Materials by Ford Japan: Amounts and Savings Over Imported Materials, 1930-1936 -

Year

Value of Material Purchased

Cost, if Imported

Amount of Saving

Totals/ Averages

$6,198,951

$8,723,271

$2,524,321

Percent of Saving

28.9

Source: Adapted from a report in the Ford Motor Company Archives, from the files of Mira Wilkins. Notes: The above figures represent only production parts approved for local purchase. Supplies and equipment bought in Japan are not included. All figures in US. dollars, rounded to the nearest dollar.

alism and militarism which encouraged MCI, the Army, and other public agencies to press for policy changes, led the government to adopt new motor-vehicle legislation. Based on a 1935 Army proposal, the Diet in May 1936 passed the Automobile Manufacturing Industry Law (see Appendix B), followed by three imperial edicts issued that July which set the date of enforcement and the specific measures to be taken under provisions of the legislation. Similar to public initiatives in the foreign-investment arena passed earlier in the decade, some of these measures provided direct assistance to Japanese-controlled companies. The new regulations required that all automakers in Japan receive government licenses to produce more than 3,000 cars per year so as to gain special government support and protection (and to avoid various restrictions). Only car companies controlled by Japanese interests, however, were eligible for such licenses. Approved concerns would benefit from 5-year exemptions on income, business revenue, local and parts-related import taxes, and other measures.lsONissan and Toyota immediately applied

The Sliding Door, 1930-1940

TABLE 9 The Movement of Japanese Employees from GM Japan and Ford Japan to Japanese Automobile Companies: Some Prominent Examples Name Tanaka J~zaburb Maeda Isamu Hattori Seki Kamiya ~ h 6 t a r 0 Hanasaki Shikanosuke Kato Masayuki Ashida Sadajir~ Nakai Arano Konishi Yoshikazu Maehara Masanori Tanaka Isamu Kawazoe S ~ i c h i Takashima Tameo

Initial Employer GM Japan 11 /I

11

11

11 11

It

Position in and Name of Later Employer Director, Nissan Managing Director, Nissan Managing Director, Tokyo Office, Toyota President, Toyota Auto Sales Managing Director, Toyota Auto Sales President, Toyota Auto Sales Managing Director, Nissan Auto Sales President, Fukuoka Toyota

Nissan Managing Director, Nissan /I Manager, Editorial Services, Nissan GM Japan, Ford Japan Vice-president, Nissan America 11 Head, Tokyo Office, Nissan Auto Sales I1

Ford Japan

Sources: Udagawa Masam, "Senzen Nihon no kigya keiei to gaishikei kigyd' (Prewar Japanese industrial management and foreign capital affiliated enterprises), Keiei shirin 24.1: Part 1, 29 (April 1987); Yanase Jir6, Wadachi (Tire tracks), pp. 195-197. Notes: "Position," where indicated, signifies last title before retirement. Konishi Yoshikaze later worked for the Japan branch of Caterpillar.

for and were granted licenses, as was the Japanese-owned Diesel Motors soon thereafter.181 Other regulations adopted under the Automobile Manufacturing Industry Law restricted the operations of the two foreign automobile companies in Japan, the local subsidiaries of Ford and GM. MCI and other bureaucratic agencies drew up detailed plans for the number of foreign cars domestic makes would gradually replace. (See, for example, Figure 7.) The government then notified Ford Japan and GM

The Sliding Door, 1930-1940

Japan in September 1936 that they would have to restrict their annual production to 12,360 and 9,470 motor vehicles, respectively.182 Officials further explained that the American subsidiaries would receive none of the assistance accorded Japanese-controlled manufacturers, and that they would have to remain as assemblers and could not become full manufacturers.183 In addition, the authorities in 1937 instituted stricter foreign-exchange control and import measures which required Ford Japan and GM Japan to apply for licenses each time they sought to import parts or remit funds abroad. Once again, government policies placed in jeopardy the Japanese business of the American automobile companies. General Motors, for its part, decided to continue its operations within the new legal confines. During the first year and a half after the law went into effect, Japanese demand for both cars and trucks was so great that the American company not only fulfilled its domestic production quota but also imported thousands of completely assembled vehicles. Yet, as production by Japanese companies rose, the output of the American company declined. (See Figure 8.)lg4 Tighter restriction of exchange and import licences was one method the government used to force down GM's market share. Suzuki Kanemitsu, the ranking Japanese manager of the Osaka-based GM subsidiary, traveled constantly to Tokyo in the late 1930s to seek increasingly hard-to-obtain MCI and MOF licenses so that GM Japan could purchase vital imported parts and remit funds to the U.S. parent company. Yet, as war approached, it became next to impossible for Suzuki even to talk to the responsible officials. At MCI, for example, he had to get the permission of the Engineering Department. When Suzuki arrived at the Department offices, however, he often found key officials conferring endlessly with Kamiya Shatara, the former GM Japan employee who had left the American company to join Toyota. "Kamiya would stay there all day long. They were busy talking, laughing, joking," Suzuki later recalled. "I couldn't even see [the MCI officials]-they were too busy with Japanese companies."185 FORD AND GM STRATEGIES: PHASE TWO.

The Sliding Door, 1930-1940

Towards the close of the period, General Motors had little choice but to limit its exposure in Japan, replace foreign with Japanese managers, and await further developments. The American company would ship parts only if it could first obtain import and foreign exchange permits, and timed shipments so that there was never more than $50,000 worth of unpaid goods either at the plant or on the ocean.lX6Detroit began to repatriate its foreign staff stationed in Japan from October 1940, and operations soon came to a virtual standstill.187 Ford, by contrast, now considered a joint venture with a Japanese partner. Company officials in Detroit had become particularly concerned about the development of Japanese government policies after the Cabinet had approved the draft auto legislation in 1935. Indeed, some top Ford men as early as that autumn wondered aloud if the firm should not consider a combination with Japanese capital. B. J. Craig, one ranking executive, had written Kopf in November 1935 with instructions to "investigat[e] the possibility of re-organizing our present Japanese Company or organizing a new Japanese Company in which the Japanese public may be invited to invest."l88 In addition, Aikawa, Baron Iwasaki Koyata of Mitsubishi, and other Japanese interests already had approached Ford on a number of occasions in the early 1930s to sound out company officials on the possibility of Japanese capital participation in the Yokohama subsidiary.189 Throughout 1935 and much of 1936, however, Kopf had argued successfully against any such plan by convincing Detroit that an expanded operation fully controlled by the U.S. parent offered the best guarantee against future Japanese public restrictions: "I feel very strongly," he wrote to headquarters in August 1935, for example, that "we should go ahead with our plans as rapidly as possible, so that it will be more difficult for the government to block our development."190GM's rush to compromise was a mistake, he felt, and their lost time and energy "serves General Motors right for getting scared instead of sitting tight."191 Yet, after passage of the automobile law and issuance of the official edicts, even Kopf came around. Government officials, however, discouraged Ford's attempts at allying with local companies not already in the motor-vehicle industry.

The Sliding Door, 1930-1940

By September 1936, for example, Kopf had been holding discussions with Furukawa Electric Company and the Mitsubishi interests about a possible combination.192 A tentative agreement had been worked out whereby a new company would be formed to take over.Ford Japan and in which the subsidiary's U.S. parent would hold just onethird of the equity.193 This represented yet a further shift in principle in Ford's ~ositionbeyond mere acceptance of a joint venture: Never before had the Ford Motor Company agreed to a minority stake in an overseas company anywhere.194 Yet even this plan met with failure, for the Minister of Commerce and Industry, apparently under pressure from the Army, told Kopf that Ford Japan could merge only with Japanese auto firms already licensed by the g0~ernment.l~~ Kopf then discussed various possible merger arrangements with his two principal Japanese competitors. Aikawa, who had moved the headquarters of the Nissan group to Hsinking, Manchukuo, when he was named to head the official development authority there in December 1937, at first wanted to merge his auto company with Ford's and extend their joint production to Manchukuo-"an advantage which would no doubt be greatly appreciated by the Army," Aikawa pointed out to the American c0mpany.1~~ Kopf managed to talk him out of it, however, and shifted Aikawa's attention back to Japan, where the two explored the idea of a 60/40 Nissan/Ford combination to manufacture motor vehicles for the "Japan-Manchukuo-China economic bl0c."19~Kopf clearly understood that the very survival of his company lay in the balance: "Unless there is a radical deviation from present trends," he wrote Detroit, "we face a period of steadily declining business and eventual e~tinction."'~~ Toyota then approached Kopf in August 1938 about a possible merger, and Ford Japan soon began to conduct parallel negotiations with the two licensed firms.199 Finally, all three firms settled on a contract for a 40/30/30 Ford/Nissan/Toyota combination-which was signed by Kopf, Aikawa, and Toyoda Risabur6 in mid-December 1939. Yet opposition from the Army and a top manager at Nissan, who represented the Japanese company during an extended overseas trip by Aikawa, apparently delayed the deal long enough to prevent its i m p l e m e n t a t i ~ n . ~ ~ ~

The Sliding Door, 1930-1940

Meanwhile, the government, in part due to Japan's meager supply of U.S. dollars, was tightening restrictions on Ford import and foreign-exchange licenses. Permission to import vital parts from America became increasingly difficult to obtain, and the unwillingness of the authorities even to tell Ford what permits it might expect made planning extremely difficult.201 Moreover, the government had in effect frozen all Ford Japan assets by mid-1937. The American parent company appealed directly to the U.S. Department of State for help in persuading the Japanese authorities to issue foreign-exchange licenses so that it could remit dividends and profits, but with little apparent effe~t.~OZ Finally, officials at the Ministry of Finance called in Kopf and "informally suggested" that, if Ford wished to receive foreign exchange licenses, it should buy 1 million yen worth of "China Incident" bonds to support Japanese forces on the Chinese mainland.203 This Kopf did after receiving approval from Detroit, and almost immediately Ford Japan was able to transfer more than $1.5 million of its funds to the United States.204 With talks between Ford, Toyota, and Nissan making little headway, restrictions on Ford began to take an increasing toll. New import and foreign-exchange licenses became almost impossible to obtain in the late 1930s. Ford headquarters thus gradually cut back on its parts shipments to Yokohama, and activities at the plant steadily dwindled.205 Most foreign employees left Japan by the end of the decade, at which time the erstwhile leading producer of automobiles and trucks in Japan operated little more than a shell. O T H E R AMERICAN MULTINATIONALS

Ford and GM, of course, were not the only American multinationals that faced growing pressures to withdraw from Japan during the 1930s. RCA Victor,. for example, confronted similar restrictions in the prewar decade. An early American success story, as we have already seen, the company faced growing pressures to divest from Japan during the prewar decade. Some of these pressures stemmed from conditions in the U.S. market. For one thing, parent RCA suffered greatly from the 1929 stock-market crash, the ensuing Depression and a lengthy antitrust suit in the early 1930s which con-

The Sliding Door, 1930-1940

siderably undermined its financial position. And, for another, Victor's U.S. operations, which now included the manufacture of radios, faced increasing competition from other American companies such as Emerson and Philco; this further damaged RCKs overall business position. These difficulties persuaded RCA to reduce its overseas holdings, which included Victor plants in Canada, Argentina, and elsewhere.206 At least as important as conditions in the American market, however, was intense Japanese pressure on Victor to sell off its local investment to domestic interests. The "Buy Japan" campaigns, for example, encouraged Japanese consumers to purchase products from Victor's locally controlled competitors. The authorities created further difficulties for Victor from the mid-1930s by increasingly tightening foreignexchange allowances for needed imports and profit remittances.207 Pressure from Japanese business also proved significant. Specifically, the Nissan group-which, according to contemporary U.S. diplomatic accounts, "desire[d] to control the Uapanese] phonograph industry because it has been such a profitable oney'-used the threat of further government pressure in negotiations with the American firm, and promised Victor help in remitting proceeds if Victor would sell out to Nissan.208Nissan "has close contact with Japanese Army leaders," the American Consul in Yokohama reported in 1937, and "has benefitted [from] heavy Army support." For this and other reasons, the official said, Nissan could influence official policy to encourage Victor to divest itself of its Japanese company.209 As a result of these various pressures, RCA Victor sold off its direct manufacturing investment in Japan before the close of the 1930s. (See Table 10.) The Nissan group acquired most of the American company's interest in Japan Victor in 1937, and the Japanese government granted the necessary exchange permits to enable the U.S. concern to remit all the funds from this sale to the United States eighteen months later.210 Before the end of the decade, Shibaura Electric (now Toshiba) had acquired Nissan's stake and the U.S. parent had sold off the rest of its investment in Japan to other Japanese companies. Japan Victor-or JVC, as it came to be called-would develop into a major Japanese success story after the war. Less than fifteen years after its ini-

The Sliding Door, 1930-1940

TABLE 10 Changes in the Equity Ownership of Victor Talking Machine Company of Japan, 1927-1947 Owner

9/27-2/29

2/29-6/37

7/37-12/37

12/37-2/38

2/38-1947

RCA/Victor Mitsubishi Sumitomo Nissan Toshiba Dai Ichi Life Insurance Japan Electric Development Total Source: Nihon Kogy6 Gink6 (Industrial Bank of Japan), Gaikoku kaisha no honpa tashi (Investments by foreign companies in Japan), p. 204; Nihon B i k u ~(Japan Victor), Nihon bikuG gojiinen shi (A fifty-year history of Japan Victor), pp. 57ff. Notes: Japan Electric Development (Nihon Denka) was a subsidiary of Toshiba. Sources vary on the precise periodization, which depends upon the choice of criterion for determining ownership.

tial investment, the American Victor company had been compelled to leave Japan.211 The American communications firm International Telephone and Telegraph (ITT), which had become a direct investor in Japan through acquisition of Western Electric-controlled NEC in 1925, likewise faced increasing pressure to withdraw from Japan during the 1930s. Local officials began to shift their purchases of telephones and related equipment from NEC to Japanese-controlled firms such as Oki Electric and Tiia Electric in the late 1920s. The Ministry of Communications then announced, in July 1930-more than one year before the Manchurian Incident, which signaled the growing strength of the military in official policy circles-that only Japanese-controlled producers would receive privileged consideration from the government. These actions induced ITT President Sosthenes Behn to seek to reduce his company's interest in NEC to a minority position. This he accomplished in June 1932 when ITT sold to the Sumitomo interests-in whom ITT held an equity position through its previous

The Sliding Door, 1930-1940

acquisition of a minority stake in Sumitomo Electric, and who had ~urchaseda small percentage of NEC stock in earlier years-just enough of ITT's equity in NEC to bring the American share under 50 percent. Continued Japanese government pressure led ITT to reduce further its investment in NEC, which stood at less than 25 percent by 1940. ITT, like Victor, had been forced out of Japan during the era of the Sliding Door-and domestically controlled businesses became the immediate beneficiaries.212 Not all American direct investors, however, were forced to withdraw from Japan during the 1930s. Two groups of U.S. firms in particular managed to escape many of the restrictions imposed on other American companies. First, U.S. oil companies with direct stakes in Japan avoided much of this regulation-despite the controls contained in the 1934 Petroleum Industry Law. Standard-Vacuum Oil Company, for example, managed to continue importing and distributing oil through its Japanese marketing network throughout the entire decade. Indeed, among the 6 American firms surveyed by the U.S. Consulate in Yokohama in 1939, Standardvacuum Oil-the only petroleum company in the group-was found to have had by far the least difficulty obtaining foreign-exchange or import licenses.213 Moreover, the Yokohama Specie Bank even granted Standardvacuum much sought-after forward-exchange contracts so that the oil company could protect itself against future currency realignments. And Associated (later, Tidewater) Oil, which imported and refined petroleum in Japan through an equal-partnership joint venture with the Mitsubishi interests, also was permitted to operate with relatively few ~ l ~these American companies had sperestrictions in the 1 9 3 0 ~ . Yet cial leverage not possessed by many other U.S. firms-oil was, and would remain, in the words of economist Raymond Vernon, Japan's '%chillesYheel"-because these firms largely controlled access to des~ l ~ as perately needed oil available overseas but not in J a ~ a n . Indeed, we shall see, this special leverage enabled U.S. petroleum companies to gain unusual access to the local market in the postwar period as weL216 Second, a few of the American subsidiaries established as joint ventures with major Japanese business interests also fared better than

The Sliding Door, 1930-1940

many other U.S. investors. These subsidiaries, which included the Japanese investments of NCR, Carrier, and Otis Elevator, generally enjoyed the support of locally powerful concerns connected to the Fujiyama, Mitsui, and other Japanese zaibatsw business combines. The U.S. State Department's Eugene Dooman noted this phenomenon in a 1935 conversation in Washington with the counsel for the Ford Motor Company. "I remarked," Dooman later recalled, "that it was an interesting fact that those enterprises with which Japanese were not associated were encountering difficulties, whereas enterprises operated both by Americans and Japanese seem to be having smooth sailing."*17 Few U.S. subsidiaries in Japan still experienced "smooth sailing" as the decade drew to a close, but those nonpetroleum companies that fared best generally had operated as joint ventures with substantial Japanese private interests for a number of years before stricter controls became more widespread.

CONCLUSIONS With few exceptions, growing Japanese regulation during the 1930s decisively altered the fortunes of American multinationals in Japan. As we have already seen, the government placed increasing restrictions on the activities of the local Ford and GM investments, for example, as the decade progressed. At first, the authorities raised tariffs on imports required by the American subsidiaries, and pressured these subsidiaries to sell part of the equity in their operations to native interests. Later, the government imposed local production and other limits on the U.S. companies, and directly assisted Japanese competitors in multifarious ways. Rising controls convinced many other American firms as well to sell all or part of their local investments to Japanese business. (See Table 11.) Indeed, as early as 1933, U.S. Ambassador Grew reported that "investments by American firms in distributing plants or in affiliated factories in Japan may be considered to be extra-hazardous."218 Nor would such hazards decrease later in the decade. As a result of this new regulation, U.S. direct investment in Japan declined sharply during the era of the Sliding Door. O n the one

Manufactured air conditioners Manufactured records Manufactured electric products Manufactured tires Manufactured telephone equipment Manufactured glass Oil refining Manufacturing Manufacturing

Carrier Corp. Columbia Co. General Electric Goodrich (B.F.) International Telephone & Telegraph Corp. Libbey Owens Glass Tidewater Victor Talking Machine Westinghouse 9

50 68

59 30

57

50% 67 57-32 (2 cos.)

Source: Adapted from Mira Wilkins, 'American-Japanese Direct Foreign Investment Relationships, 1930-1952," Business History R a r h 56.4:505 (Winter 1982).

Activity

Corporation

Percentage U.S. Ownership in Japanese Enterprises 1931 1941

TABLE 11 The Withdrawal of U.S. Multinational Investment from Japan, 1931-1941: Some Prominent Examples

Conclusions

hand, many American firms already in Japan greatly reduced their direct investments in the local market. And on the other, few U.S. companies not already in Japan would gamble on direct entry. The macro statistics reflect these micro realities: Total stocks of U.S. direct investment in Japan, which stood at roughly $61.4 million in 1930, had declined to just $37.7 million ten years later.219 Japanese business significantly influ.enced public policy even during this period of intensifying nationalism and rising military power in the ranks of the government. As demonstrated in the motorvehicle case, for example, the heads of the three major domestically controlled producers directly helped shape the character of government policy during its first phase in the early 1930s. In addition, Nissan's Aikawa actively encouraged government officials in the civilian and military bureaucracies to defeat Ford's initial strategy to establish a complete manufacturing facility in Japan. And, later, Nissan and Toyota together pressed the government for public assistance and protection as they developed their own manufacturing capacities and sought to contain the competition from Ford and General Motors.

Thi

d

l d df

Thi

d

l d df

THREE

The Closed Door, 1940-1950

The decade of the 1940s marks one of the most exceptional periods in modern Japan's international economic relations. During the first half of the decade, of course, war interrupted commercial relations with the United States and other countries, and the domestic economy was geared to meet chiefly military needs. And during the Occupation, American and other Allied officials played an unprecedented role in the conduct of Japan's economic relations with the outside world.1 Quite naturally, war and its aftermath also created an unusually unattractive environment for American investors. Unlike many aspects of Japan's pre- and postwar economies which naturally drew the interest of U.S. multinationals, hostilities early in the 1940s and Japan's resulting economic devastation together with tight capital controls later in the decade discouraged American direct investment. This decade also represents something of an aberration in the pattern of Japanese economic policymaking towards foreign investment

Thi

d

l d df

The Closed Door, 1940-1950

first established before the war. In the 1930s, as we have seen, the private sector played an important role in the formulation of government policies towards American investors. In the 1940s, however, the public sector-first controlled by the Japanese, later controlled by the Americans as well as the Japanese-acted with far greater independence than during the prewar decade. Still,Japanese business did influence foreign investment policies in certain, particularly wartime, instances. Despite the exceptional circumstances brought on by war and occupation, however, treatment of foreign direct investment in many ways resembled prewar practice: The tight restrictions instituted in the 1930s continued throughout the 1940s. Indeed, so severe were these controls on FDI that the period as a whole resembled a "Closed Doory' for most U.S. and other foreign investors. These investment restrictions once again adversely affected the fortunes of American multinationals. In wartime, U.S. parent companies lost control of their Japanese subsidiaries and affiliates, and no new investments, of course, were attempted or allowed. Yet even during the Occupation, many American firms that did seek to invest in Japan still encountered major barriers to entry. IBM and Otis Elevator, which had entered Japan before the war, were among the few American "success" stories in early postwar Japan, but even these companies encountered investment restrictions which significantly limited their position in the civilian Japanese market during the late 1940s (and beyond). In addition, restrictions barred virtually all potential U.S. investors that had not established local operations before the war. Of course, restrictions do not fully explain the level or pattern of American direct investment in Japan throughout the decade. Some U.S. companies, especially in the petroleum industry, managed to invest after the war with relatively few hindrances. Others, such as the two main automakers, hesitated to invest immediately after the war regardless of official policy. Different factors provide critical explanations for these events. Such exceptions notwithstanding, investment restrictions provide a major explanation for the low levels of American direct investment in Japan during the decade of the 1940s.

Thi

d

l d df

The Closed Door, 1940-1950

JAPANESE RESTRICTIONS WARTIME MOTIVES.The overriding motivation for Japan's wartime controls over foreign direct investment was to strengthen the nation's military power and security. Expansion of hostilities in the early 1940s encouraged leaders in Japan-as in many countries-to take control of enemy assets located in their markets and, where possible, to turn these assets to domestic advantage. The nation, Japanese officials explained in the Diet shortly after the start of hostilities with the United States, had to "actively control and utilize" American- and other enemy-owned investment in Japan "to contribute to overall national strength.'' At the same time, however, the authorities took advantage of the unusual wartime circumstances to use the investments of foreigners specifically to promote domestic economic development. As the Cabinet explained in a major 1942 decision, enemy patents should be canceled "when necessary from the standpoint of either the military or public weIfare."3 Such actions, while assisting the nation's war effort, would also directly "enlarge industrial production and promote industrial technology."4 In short, economic as well as military objectives motivated the authorities to control FDI in wartime Japan.

METHODS. The government worked diligently to turn enemy investment to domestic military and economic advantage in war. Already in 1940, American investments in Japan had lost the benefit of international legal protections following the United States-initiated abrogation that January of the bilateral Commerce and Navigation Treaty5 The authorities then officially froze U.S. assets in Japan in July 1941, following reciprocal American measures earlier that month. To accomplish their wartime military and economic goals, the authorities expropriated and then utilized American and other Allied direct investments in Japan during the war.6 The government set up involved legal procedures to supervise this process.' To dispose of Allied-owned tangible property, such as factories and machinery as well as stocks in Japanese corporations, the government passed the

Thi

d

l d df

The Closed Door, 1940-1950 Enemy Property Control Law (EPCL) on 22 December 1941.8 This measure specifically empowered officials to seize Allied properties and sell them to Japanese interests. Based on this legal authority, the government-with significant input from the private sector-transferred to Japanese organizations assets owned by numerous American and other "enemy" companies. Through this procedure, for example, Fuji Photo Film gained control of color film processing and other equipment formerly held by Kodak Japan, and a number of other domestic firms took over the production facilities of British-affiliated Dunlop Rubber (Far East)-renamed, in war, Central Rubber Industries.9 Private-sector influence was evident in at least some of the official decisions involving allocation of the enemy properties. In deciding to shift control of the local subsidiary of the British manufacturer Babcox & Wilcox to Mitsui & Co., for example, the administrator charged with the allocation decision noted that Mitsui, which held one third of the shares in that subsidiary before the war, "had said [even] in earlier times that it wanted to acquire" the remaining shares of the joint venture. Thus, this official concluded in explaining his decision, transferring the British shares to Mitsui "will cause them to be adequately utilized.""J A Japanese firm also influenced government policy towards IBM's local properties in war, as we shall see. In addition, through this legal machinery domestic firms took control of most U.S. and other Allied shares in Japanese-registered corporations. Roughly 2.3 million such shares owned by Americans before the war were so disposed of during the war." The government also expropriated and utilized patents and other intangible assets formerly controlled by Allied companies. The 1917 Wartime Law on Industrial Property Rights (WLIPR), first used to confiscate German property in Japan during World War I, was reinvoked on 27 December 1941 as a Special Wartime Law under the EPCL.12 "If it is necessary either for military purposes or it is in the public interest in view of present conditions," the WLIPR stated in part, "registrations of patents or trademarks belonging to an enemy national may be revoked."l3 Officials did indeed invalidate and transfer to Japanese companies, for example, Allied-owned patent rights in numerous industrial fields. Under this measure, some of these

Thi

d

l d df

The Closed Door, 1940-1950

patents were made widely available to all Japanese companies; others were granted on an exclusive basis.14 To supervise this process, the government established a Board of Inquiry on the Wartime Law on Industrial Property Rights, which met six times between August 1942 and July 1943.15 By the later date, the Board had canceled 1,394 enemy-held patents-including, for example, those registered by International Standard Electric, National Cash Register, Westinghouse, United Engineering, and United Switch and Signal-and had granted to Japanese firms 92 exclusive licenses in the machinery, chemical, and electrical industries.16 (See Table 12.) The list of domestic beneficiaries reads like a Who's Who of leading Japanese industrial enterprise of that era." Recipient companies paid the government in yen for these expropriated assets, and the proceeds were then deposited in special bank accounts under the name of the foreign investor during the prosecution of the war. These accounts, called Special Property Administration Accounts (SPAAs), were blocked, denominated in yen and held by the Yokohama Specie Bank (YSB).18 Careful records were kept of the yen amounts belonging to foreign companies, and even interest was credited on a regular basis. More than 360 million yen were deposited in these accounts to compensate for seized assets, of which roughly two-thirds had been United States-owned. (See Table 13.) OCCUPATION MOTIVES. American and Japanese officials both shaped policy towards foreign investment in occupied Japan, and thus their respective views together largely explain the motivations for restrictions imposed on FDI in this period. U.S. officials in Washington and Tokyo, for their part, envisioned a relatively unrestricted Japanese regime for inward direct investment a f e r the Occupation, but sought significant control over such investment on a temporary basis during the nation's recovery from the destruction of war. In the immediate aftermath of Japan's defeat, U.S. officials in the office of the Supreme Commander for the Allied Powers (SCAP, the Occupation Government), in the Department of State and elsewhere viewed foreign investment as an unneeded complication which might well retard their efforts to super-

Thi

d

l d df

The Closed Door, 1940-1950

TABLE 12 The Disposition of Allied Patent Rights in Japan: Cancellations and Exclusive Licensing by Committee, August 1942-July 1943 Committee Session 8/17/42 Cancellations Licenses 9/ 16/42 Cancellations Licenses 10/19/42 Cancellations Licenses 12/4/42 Cancellations Licenses 3/25/43 Cancellations Licenses 7/9/43 Cancellations Licenses

Totals Cancellations Licenses

Machine Industry

Chemical Industry

Electrical Industry

47 19

54 0

96 2

197 21

182 20

89 1

70 1

341 22

3 1

1 0

30 1

34 2

492 64

370 13

532 15

1,394 92

Total

Source: Japan Gkurasha (Ministry of Finance), Dai nijt kzisen ni okeru reng~kokuzaisan shori: senji hen (The management of World War I1 Allied property: Wartime), I, 380-381. Notes: "Cancellations" refer to patents registered in Japan by Allied interests before World War I1 which were then canceled by the Japanese government and made generally available to private Japanese interests after the outbreak of the war. "Licenses" refer to the exclusive awards of such patents ro specific Japanese enterprises. "Committee Sessions" refer to meetings of the Board of Inquiry on the Wartime Law of Industrial Property Rights. Cancellations and licensing of United States-owned patents far exceeded those of any other nation; England ranked second, and Holland third.

vise the military, economic, and political reformation of Japan. American officials continued to support major FDI restrictions in Japan even after the goals of the Occupation had shifted in mid-1947 from political and military reform to economic recovery and growth. In this second phase of Occupation policy, officials worried that foreign business might take undue advantage of weakened and

Thi

d

l d df

The Closed Door, 1940-1950

TABLE 13

Property of British, Dutch, and United States Nationals Seized by the Japanese Government during

Country

Number of Reports

United Kingdom Australia Canada India New Zealand South Africa

754

89,620,644.85

12

746,858.86 14,864,414.60

232

19,686,643.54

3

914,483.32

1,034 102

Grand Total

Total Assets (in yen)

30

3

Total British Empire Netherlands United States

World War I1

31,584.81 125,864,629.98 14,952,543.76

693

221,656,850.42

1,829

362,474,024.16

Source: Ministry of Finance, as cited in RG 353, SWNCC 357, p. 14. Notes: "Number of Reports" refers to individual postwar claims against Japan by UN nationals for property seized during World War 11. "Total Assets" apparently represent asset values at the time of seizure by the Japanese government, together with interest accrued following expropriation. The exchange rate of the yen stood at roughly 4.26 yen per U.S.dollar in January 1940 and at 15 yen per U.S. dollar, at the military rate, in 1945.

vulnerable Japanese companies stocks at a time of

high

by

purchasing their undervalued

inflation and other conditions which had

greatly reduced the dollar price of these Japanese securities.19 In tion,

addi-

U.S. and other overseas interests might engage in "exploitation,"

"carpetbagging," and other practices which would unfairly place foreign business interests in advantageous positions in the local economy, U.S. officials feared, and ultimately could deplete Japan's limited reserves of foreign exchange.20 Such actions, they said, might even jeopardize the overall success of the economic recovery programs of the late 1 9 4 0 ~Some . ~ ~ specific types of

FDI might create benefits for

the local economy, American authorities felt, but such investments would have to be carefully regulated to prevent undesirable outcomes. Most Japanese business and government officials also favored FDI restrictions, although their reasons differed from those of the Americans. Bureaucrats at

MOF, for

Thi

example, strongly opposed majority

d

l d df

.

The Closed Door, 1940-1950 foreign ownership of major Japanese companies and those domestic firms operating in important fields such as heavy industry because they viewed such ownership as a threat to national economic sovereignty. Japanese ownership of "basic industries" is "essential for the independence of the Japanese economy," stated one internal 1947 MOF report, so in these fields "we must be vigilant in order to prevent foreign capital from gaining control of company management."22 Or, as later explained by a ranking Japanese investment official of the Occupation era: "Suppose U.S. Steel wanted to start a big [operation in Japan] or buy up one of the uapanese steel] companies. We will probably have objected to i t . . . because the steel industry is one of the basic industries and these should be Japanese."23 Government officials also professed concern about the effects of FDI on Japan's limited stocks of foreign exchange, which remained inadequate to fund the nation's long list of desired imports. Japanese business organizations generally opposed with at least equal vigor free inflows of FDI largely because they feared increased foreign influence over their industries. Perhaps the most revealing indication of Japanese business attitudes towards inward direct investment in this era was a confidential 1948 survey, "Overview of the Opinions and Wishes of the Industrial World Concerning Foreign Capital Induction," which polled 11 industry associations and 36 individual Japanese companies on the foreign-capital issue. According to this survey, a majority of those polled favored significant FDI controls. The most common reason offered was that "restrictions are necessary to prevent the loss of Japanese economic independence and to stem the flow [of foreign capital] into highly important [business] fields."24 Still more telling, an even greater majority advocated limits on the overall share of foreign investment in a given Japanese enterprise. Such limits the respondents favored to "support the independence of uapanese] management," or, more specifically, to insure that foreign investors "would not have controlling rights."25 At the same time, a significant minority of local interests favored fewer FDI restrictions. Those interests included, perhaps most notably, Japanese firms with prewar capital ties to foreign companies in Japan.26 Though their motivations differed, American ofKcials and most

Thi

d

l d df

The Closed Door, 1940-1950

Japanese government and business leaders therefore favored restrictions on FDI in Japan during these initial postwar years. American policymakers sought temporary controls largely to protect the local economy in reform and recovery, whereas Japanese officials and managers favored investment regulations to prevent significant foreign influence over important domestic industries and companies. Still, in terms of short-term policy, both sides stood in fundamental agreement. With shared goals, American and Japanese officials together severely restricted foreign direct investment in Japan throughThe authorities gradually modified out the latter half of the 1940~.~' these restrictions over the course of the Occupation, but substantial controls remained in place even after such modifications. The Occupation Government held ultimate authority over Japan's international economic policy throughout the period. "The authority of the Emperor and the Japanese government to rule the state," read the official Instrument of Surrender, "shall be subject to the Supreme Commander for the Allied Powers," and in the economic as in other spheres this authority extended to the conclusion of international accords.28 Under Occupation rule, Japan made only limited financial and other international economic agreements with foreign nations, and the country entered into no FCN or similar treaties with the United States or other nations during these ~ears.2~ SCAP barred virtually all FDI in Japan during the first years of the peace. Focusing its initial efforts on the twin challenges of demilitarizing and democratizingthe defeated nation, the American-controlled Allied Occupation Government blocked from the autumn of 1945 virtually all foreign investment and other international economic transactions. Foreign acquisitions of Japanese assets were explicitly prohibited, for example, as were "any financial, commercial, or business contracts" between foreign-controlled businesses and parties located in Japan without explicit SCAP approval.30 In addition, SCAP barred the entry into Japan of private commercial representatives from the United States and other c ~ u n t r i e s MOF, . ~ ~ at S C A R direction, strictly regulated foreign-exchange transactions rhroughout

METHODS.

Thi

d

l d df

The Closed Door, 1940-1950 the period, just as the Ministry had done before and during the ~ a r . ~And 2 the authorities limited international trade to that which met specific Occupation economic objectives.33 SCAP granted just one major exception to the general ban on foreign investment during this initial Occupation period: Specified foreign companies could establish local operations to support Allied personnel and operations. Thus, for example, foreign banks such as National City Bank of New York were allowed to operate local branches to serve as financial repositories for Occupation personnel; foreign oil companies such as Caltex could establish Japanese operations to support the Allied forces; and various other foreign companies such as Coca-Cola and IBM were permitted to enter in the service of the O c ~ u p a t i o n Such . ~ ~ companies, however, first had to secure SCAP's explicit approval to invest, and even then could not serve the civilian Japanese market without express permission from Japanese officials. Indeed, the severity of these initial controls on foreign investors provoked vehement protests by American companies against the actions of their own government. The managers of numerous U.S. firms with substantial prewar Japanese operations, for example, met at India House in New York in the autumn of 1945 demanding authorization to enter Japan and examine their Japanese properties, but U.S. officials refused to grant them permission. Undeterred, some companies such as Singer Sewing Machine continued to press for entry even after the failure of the India House initiative, but with little effect. 'We have had absolutely no information regarding our former interests," Singer wrote the U.S. Department of State in December 1946 in a protest similar to many others the Department was then receiving from prewar American investors. ''No representative of our company has yet been permitted to proceed to Japan."35 The official response, however, gave no ground: "In deference to the magnitude of the task incumbent on [SCAP]," a U.S. diplomat replied to Singer, "the Department has refrained from making any requests which might impose the additional burden upon the military government of facilitating visits of commercial and industrial representatives."36 Other requests elicited similar replies.

Thi

d

l d df

The Closed Door, 1940-1950 SCAP finally granted limited privileges to prewar foreign investors from mid-1947. As Occupation policy shifted to encourage economic development, the authorities began to deregulate some private international trade and other transactions. Allied officials that August, for example, first granted permission to small numbers of commercial representatives of prewar investors to visit Japan, and gradually increased those numbers in succeeding months.37 Additional changes came the following year. In April 1948, for instance, specific procedures were established for restoration and reititution of prewar Allied property, and, that May, SCAP ordered the Japanese government to return shares of Japanese companies owned by Allied interests before the war. (Disputes over the claims of American investors considerably lengthened the restitution process, however. Indeed, not until 1960 did the postwar United States-Japanese Property Commission, whose membership included a representative from Sweden as well as one from each of the two countries directly involved, resolve all outstanding claims.)3* (See Table 14.) The authorities did not significantly change FDI policies until the close of the decade. SCAP finally announced, in January 1949, that American and other foreign direct investment in Japan henceforth would be permitted for the first time since the start of the war. "A gradual re-opening of Japan to private foreign investment is necessary and desirable," the U.S. State Department had concluded in a classified report some months earlier, "in order to create needed foreign exchange and to aid in the rehabilitation of the Japanese economy."39 Overseas investors now could contemplate direct entry under SCAPs revised regulations. Despite this modification of investment policy, however, FDI flows were still far from free. For one thing, foreign investors who sought to acquire stocks or other property rights in Japan now had to apply in advance to the Japanese government's Foreign Investment Commission (FIC) for permis~ion.4~ Although Japan was still under occupation, U.S. officials gave the Japanese the explicit authority initially to examine and rule on all such FDI proposals under the 1949 regulations. "It is expected that the Japanese Government will formulate its own policies and establish standards upon which will be based its val-

Thi

d

l d df

The Closed Door, 1940-1950

TABLE 14 Postwar Compensation for Prewar U.S. Direct Investment in Japan: Principal Cases (current dollars) Year of Settlement

Name of Company International Business Machines Singer Sewing Machine Kodak Japan National City Bank of New York Otis Elevator Nippon Hanovia Quartz Lamp National Cash Register Hanovia Chemical Western Electric General Motors Japan National Cash Register Ford Motor Company of Japan International General Electric 'Tidewater Oil Company International Standard Electric

1953

Claim

Settlement

$52,575

$52,575

987,086 227,017

941,064 222,147

II

452,972 478,942

414,802 349,341

II

76,907

30,985

II

267,339

267,339

II

76,948 133,112

63,181 46,367

II

444,625

410,916

11

237,924

194,040

1957

1,429,397

959,419

1960

26,539,450

10,688,080

1,126,058

819,444

)I

II

1954

1955

11

14,109,102

11

6,305,555

Source: Adapted from Japan bkuash4 ed., Dai nqi &sen ni o k m rengdkoku zaisan shori: shiv0 h m (The disposition of World War 11Allied property: Materials), pp. 347-366. Notes: All dollar figures convened from yen at 360 yen per dollar and rounded to the nearest dollar. National Cash Register and International General Electric each filed and settled two separate claims; the NCR claims were settled in different years. Ford's claim (and settlement) far exceeded that of GM because Ford had purchased the land on which it built its assembly operations, whereas GM merely rented its prewar plant site. (See Chapter 2.)

idation of foreign investment proposals," SCAP advised Japan's powerful Economic Stabilization Board in early 1949. "In no instance will S U P consider validation of a n acquisition unless and until the Japanese Government has acted upon the application."41 Moreover, that October SCAP extended this important delegation of authority to

Thi

d

l d df

The Closed Door, 1940-1950

the Japanese government to cover all new foreign investment proposals. By the autumn of 1949, SCAP therefore would not consider FDI applications of any nature unless first approved by the Japanesecontrolled ~ 1 c . 4 2 The Japanese government issued its own regulations on foreign investment to guide deliberations of its FIC in March 1949. The Cabinet's critical Order No. 51 set out the government's new policy to "regulate the business and investdent activities of foreigners in Japan." The order sought not only to "stimulate the restoration of international economic relationships," but also to "promote the rehabilitation of Japan's economy on a self-supporting basis" and to "conserve the national resources of Japan."43 Even if a foreign investor managed to gain official approval under this vaguely worded order, however, such approval did not include guarantees either for the protection of the foreign investment or the right to remit abroad principal or profits which might flow from that investment. All considered, the "flavor" of the order as a "control measure" was, at least in the judgment of one official MOF history, "strong."44 In addition, all proposed investment projects then had to receive SCAP approval. To gain such approval, however, a proposal had to satisfy at least one of three SCAP "Minimum Standards" before official permission would be granted. Those standards required that such projects "improve Japan's foreign exchange position," "positively aid in Japanese economic rehabilitation," or "otherwise further a specifically expressed SCAP objective."45 Other conditions also applied, including a regulation that foreign investments in existing Japanese enterprises had to create additional assets for that Japanese concern.46 SCAP's Foreign Investment Board (FIB)-a body staffed entirely by American Occupation officials-would therefore make final determination of an investment proposal's fate on a veto basis, but any such proposal first had to receive the official blessing of the Japanese government.47 Prewar foreign investors continued to enjoy special re-entry privileges at the end of the decade, but major restrictions still limited their participation in the Japanese market. Unlike other foreign direct investors, those who had operated in Japan before the war now could

Thi

d

l d df

The Closed Door, 1940-1950

generally re-enter on the same basis as they had previously operated, even if they did not meet the above standards and conditions of Japanese and American officials.48 However, the authorities strictly limited the activities of these investors to those "lines of business" in which the foreigners had engaged in the prewar period. To expand into new fields, they would have to undergo the same rigorous scrutiny required of those who had not operated in prewar Japan. Nor did permission for the prewar entrant to invest in postwar Japan under the 1949 regulations- in any line of business-carry guarantees of protection or overseas remittances or other foreign-exchange privileges.49 Many American companies would seek re-entry on the basis of their prewar activities, although most would\manage to return only after enactment of more comprehensive investment measures at the start of the next decade.

A M E R I C A N M U L T I N A T I O N A L STRATEGIES INTERNATIONAL BUSINESS MACHINES BACKGROUND:INITIAL CONTACTS. A national census marked the starting point for International Business Machines. The United States government had awarded Herman Hollerith a contract to supply the tabulating machines to handle the 1890 American census, and six years later the M.I.T. inventor incorporated his Tabulating Machine C~mpany.~O Thomas Watson, Sr., in 1914 became the first President of the ComputingTabulating-RecordingCompany (CTR), an amalgamation of Hollerith's firm and two others, which he renamed International Business Machines in 1924.51 IBM developed rapidly in the interwar period, and by the end of the 1930s had become the preeminent manufacturer of business machines in the United States.52 The early foreign business of IBM and its predecessor organizations was based largely on overseas equipment rentals rather than exports, for Watson elected to retain the unusual practice in the business-machine industry of leasing rather than selling the equipment. This convention IBM had inherited from Hollerith, who had rented instead of sold his machines in 1890 because the U.S. govern-

Thi

d

l d df

The Closed Door, 1940-1950

ment did not wish to buy a machine it would use only once each ten years.53 Watson found that the leasing system was advantageous to IBM for at least two reasons: First, it was easier to convince a potential customer to make the more modest commitment of renting a machine for a limited number of years rather than buying a new machine outright; and second, the rental arrangement assured a steady flow of funds over significant periods of time.54 IBM established agencies in Europe, Latin America, and Asia after World War I to manage aspects of its overseas business, including the provision of service and other support.55An IBM office in Europe supervised subsidiaries in Asian and certain other foreign countries for the U.S. parent, although the Foreign Department in New York directly handled overseas trade and leasing matters.56 Foreign direct investments soon followed. In 1922, the American company gained control of a German concern which had operated with Tabulating Machine Company patents, and, by the late 1930s, this German affiliate exceeded every other IBM overseas operation in size, revenue, and profits. Like the IBM factories established in France in 1925 and Italy in 1932, the German company assembled but did not manufacture the parent's machines.57 Elsewhere, IBM began in the 1920s to set up local card-manufacturing plants to meet demand in overseas markets for its punched card system (PCS) of machine tabulating. IBM's overseas operations before World War I1 could not compare to its U.S. business in terms of revenues or profits, yet by the late 1930s the firm had a far-reaching network of overseas investments.58 In Japan, foreign manufacturers supplied practically all the tabulating machines throughout the prewar period.59 Although scientific management, industrial rationalization, and similar notions would not begin to have a major impact on most private Japanese businesses until well into the 1920s, officials from the nation's Statistics Bureau had become interested in tabulating machines about a year before Japan's first national census in 1920.60At the request of the Japanese government, the New York branch of Mitsui & Co. gathered information on four or five of the principal tabulating machines available in the United States, and, by 1922, Mitsui's Machinery Division in Tokyo had completed a thorough examination of various American

Thi

d

l d df

The Closed Door, 1940-1950 models. Mitsui decided that the Powers machine was best suited to Japanese needs, and, in June 1924, the trading firm became general agent in Japan and Manchuria of the Accounting and Tabulating Machine Company, which produced the Powers models.61 The Statistics Bureau, the Ministry of Railroads, and the Yokohama Customs Bureau became customers for the Powers machines, and soon additional government agencies purchased them as Before long, the Hollerith, the internationally popular Burroughs, and other tabulating machines became available in Japan through various importing and selling agents.63Still, when major life-insurance and other companies became interested in tabulating machines from the mid-1920~~ most initially chose Powers machines over competing makes. Indeed, even in 1937, by which time the range of foreign tabulating machines available in Japan had become still greater, Powers maintained a commanding market share which approached 80 percent.64 IBM's early business in Japan proved singularly unsuccessful. For one thing, initial demand was limited because the most important customers-government agencies-had elected to use the Powers machines imported by Mitsui. Second, there were at the outset no experienced personnel to install and service IBM machines in the country. Japan Porcelain of Nagoya apparently was the very first Japanese organization that sought to acquire an IBM tabulating machine and, in late 1923, contacted the American company through the New York branch of the Japanese trading firm Morimura Brothers.65 After almost a year of talks, a contract was finally drawn up in October 1924 between IBM and Morimura Brothers to rent a set of tabulating machines for use by Japan Porcelain, but the agreement fell through when it became clear that there was no one in Japan who could maintain the equipment.66 IBM therefore contracted to establish a general agent in Tokyo which could service its machines, but the firm then encountered new difficulties. Morimura Brothers agreed to act as sole agent for IBM in Japan after Mizushina KB, a member of Morimura's New York office, had completed the customer engineer's course at IBM's trainee school in Endicott, New York.67 IBM and Morimura signed a Memoran-

Thi

d

l d df

The Closed Door, 1940-1950

dum of Agreement in May 1925, and Mizushina helped install the first IBM machine in Japan that fa11.68 To promote business, Morimura invited representatives of government agencies, major banks, and insurance companies to a special exhibition of IBM machines, but the effort resulted in a complete failure: Not a single Japanese organization would sign a contract. In apparent disgust, Morimura decided to get out of the IBM business altogether and to transfer its agency contract to the well-known ofice-machine importing company Kurosawa Trading.69 This new agent, which represented IBM in Japan for a decade from January 1927, initially fared no better than Morimura. Kurosawa traced the problem in part to IBM's unusual rental practice which, although highly successful in the United States and other markets, initially proved to be a disaster in Japan. Specifically, government agencies found it difficult to conclude agreements because there was no provision in the official budget to allow for the type of multi-year rental contract on which IBM insisted. In addition, many private businesses felt it would be "demeaning" to have to lease instead of purchase ofice machinery.70 A few government departments did manage to work out rental accords with Kurosawa towards the end of the 1920s, but there were still very few private customers, and overall IBM business in Japan remained extremely limited.71 In the 1930s, however, Japanese demand for IBM machines increased-and IBM quickly responded. The Model 405, an alphabetical tabulating machine developed by IBM in 1932, rapidly became the industry standard among major American life-insurance companies and attracted the attention of Japanese life insurers as well.72 The powerful Japan Life Insurance and Imperial Life Insurance companies entered into leasing agreements for the new machine with Kurosawa in 1934, and within a few years the 405 had become popular among both private and government users of tabulating machines. Growth in the Japanese business brought John Holt, IBM's General Manager for Europe, and Guy de la Chevalerie, a Belgian baron active in IBM's international operations, to Tokyo in 1936 to explore the firm's options in the local market. The two IBM managers then decided to establish a modestly capitalized local subsidi-

Thi

d

l d df

The Closed Door, 1940-1950 ary, Watson Tabulating Machines (hereinafter Japan Watson), in Yokohama in June 1937.7374 IBM recognized that its decision to enter Japan as a direct investor in the late 1930s represented an extraordinary (though limited) gamble. Already economic controls in Japan had tightened considerably, and American-Japanese relations had deteriorated significantly. Moreover, war between Japan and China would begin just three weeks after the formal establishment of the Japanese subsidiary. "If international developments are favorable," said de la Chevalerie, Japan Watson's first manager, of IBM's investment strategy, "the company will eventually get out its investment. If unfavorable, its potential loss . . . is sma11."75 The Japanese government restricted the activities of Japan Watson virtually from the subsidiary's establishment, and steadily increased restrictions as the prewar decade drew to a close.76 From the very start of the new operation, the MCI would grant permits for Japan Watson to import machines from its U.S. parent only with the stipulation that initial royalties not be remitted abroad. Moreover, MOF denied the company's "repeated requests" to remit other royalties at least through 1938. "The Finance Ministry," according to the American Consul in Yokohama in January 1939, "has never definitely refused to approve the applications of the company for exchange permits, but on the other hand has never promised that permits would be granted in the future."77 Next, the government halted the issuance of licenses to import punch cards. And finally, from the fall of 1940, permits to import IBM machines became almost impossible to obtain.78 The IBM subsidiary fought to survive. By the end of 1938, Japan Watson had begun to construct a small factory to produce tabulating cards under the direction of an employee from IBM's German operation, where similar restrictions on card imports already had forced the local IBM plant there to begin card production.79 The Japanese subsidiary started turning out punch cards in March 1939, thereby turning IBM's Japanese direct investment into a direct manufdcturing investment before the start of the Pacific War.80IBM then moved to replace foreign with Japanese staff; it recalled all non-Japanese em-

Thi

d

l d df

The Closed Door, 1940-1950

ployees as restrictions mounted and anti-foreign sentiment grew-de la Chevalerie, head of Japan Watson from its establishment, had returned to Belgium well before the end of 1941-by which time Mizushina K6 had been appointed the top official in the subsidiary.81 Finally, in a last-ditch effort to make the company even more "Japanese," the U.S. parent attempted in vain to sell 20 percent of the stock of Japan Watson to the powerful Shibusawa interests.S2 The government "froze" the assets of Japan Watson the following summer, though the company continued to operate through the fall of 1941. WAR. Indeed, not even the outbreak of war halted the activities of Japan Watson. 'We are doing nothing wrong," Managing Director Mizushina K6 assured the staff of the IBM subsidiary the Monday morning after Pearl Harbor, "so there is nothing to worry about. Even if the machines are American, their efficiency benefits Japanese companies and the nation. On the contrary, we should be proud," he continued. "As employees of Japan Watson, a Japanese corporation, we should do our utmost to maintain the machines and continue to provide service to our cu~tomers."~~ In fact, though fully cut off from its American parent, the local IBM subsidiary continued to operate for more than a year after the United States and Japan had gone to war. Japan Watson collected rental fees from government agencies, life-insurance companies, and other customers who retained and actively employed the IBM machinery they had leased from the prewar period. The company not only collected rent on the tabulating machines leased by its clients, but also serviced and repaired these machines, and manufactured and sold punch cards through May 1943. Card sales alone exceeded 420,000 yen from Pearl Harbor through that May, and rental fees for the same period totaled more than 1 million yen.84 In fact, by the autumn of 1942, it began to look as though Japan Watson's wartime business would soon exceed prewar levels. The Army and Navy, for example, sought IBM machines to improve their encoding abilities. Civilian government agencies began to appreciate how tabulating machines could speed up the administration of their complex and far-reaching responsibilities. Major industrial organiza-

Thi

d

l d df

The Closed Door, 1940-1950

tions involved in armaments manufacture, such as Mitsubishi Heavy Industries (MHI), wanted IBM machines to increase the efficiency of their operations. Even life-insurance companies found that their needs for tabulating machines rose during the war: The number of calculations these companies had to perform increased dramatically, for they had to compute benefits for growing numbers of Japanese soldiers killed in action.85 Yet government actions-backed up by strong pressures from a locally influential company-soon put an end to Japan Watson's rising fortunes. Promising to increase supplies to customers if it could take over IBM's local business, Tokyo Electric sought to convince officials to turn over to them control of Japan Watson's business. The electric company's desire to manufacture IBM machines in Japan dated from prexar days, when it had tried in vain to obtain the necessary production rights through its dealings with General Electric, which at that time held a substantial equity stake in Tokyo Electric. The Japanese company apparently believed, incorrectly, that it could gain such rights by using its connections with GE, which Tokyo Electric thought might have special leverage in negotiating with IBM. This failed prewar effort, however, did not discourage the Japanese firm from making a second, wartime attempt. The authorities complied. After designating Japan Watson an "enemy company', in February 1942, MOF appointed a custodian, Jinushi Ennosuke, the former manager of the New York branch of Morimura Brothers, to oversee the expropriation process.86 Given Tokyo Electric's longstanding desire to enter the industry, when Jinushi formally proposed that Tokyo Electric form a subsidiary to take over the IBM business, the company, according to one authoritative source, "immediately and gladly accepted the offer.'y87In May 1943, Jinushi sold to Tokyo Electric (through MOF) the tabulating machines, card-manufacturing equipment, and other properties formerly owned by Japan Watson. He also sold all the spare parts directly to the Japanese company the following month. Moreover, most of the engineers and other Japan Watson employees left the company to join Tokyo Electric soon thereafter.88 And finally, through application of the Wartime Law on Industrial Property

Thi

d

l d df

The Closed Door, 1940-1950

Rights, the Government canceled all IBM patents registered in Japan so that Tokyo Electric could freely utilize them.89 (See Table 15.) To fulfill its promise to increase supplies to local customers and fully achieve its own entry into the tabulating-machine industry, Tokyo Electric invested significant resources into its new business. The Japanese electric company created a new subsidiary, Japan Tabulating Machine Company UTM), in March 1943 to run the operation.90 Tokyo Electric and four Japanese life-insurance companies were the principal shareholders, but the electric company owned a controlling interest.91 Shimizu Yoshichirs, Vice-president of Tokyo Electric, was appointed President, and Nishioka Toshio, head of Tokyo Electric's Materials Division, became Managing Director of the newly created JTM.92 With the benefit of Japan Watson's former factories, offices, machinery, spare parts, technology, and workers, Japan Tabulating Machine became the reincarnation of the former IBM subsidiary-but now fully integrated into the fabric of Japanese industry. Proceeds from the sale of Japan Watson properties, on the other hand, property custodian Jinushi then transferred, via MOF, to a (frozen) Special Property Administration Account at the Yokohama Specie Bank in yen-denominated funds under the name of Japan Watson. By the time Mitsubishi Trust had replaced Jinushi as custodian of Japan Watson in September 1943, the American subsidiary's remaining assets had been entirely sold off. Little more than a legal fiction thereafter, Japan Watson remained a joint-stock company on the official court register in Yokohama throughout the remainder of the war.g3 Immediately following its creation, JTM set to work not only to continue the rental, service, and card-production businesses, but also to manufacture tabulating machines and related equipment. Engineers from the parent firm, renamed Toshiba in July 1943 following its merger with Shibaura Electric, at first would copy IBM machine pans to support the work of JTM's maintenance and repair operations.94 And, after JTM had transferred the Japan Watson punch-card machines from Yokohama to Toshiba's Komukai factory in Kawasaki, Japan Tabulating also began to produce machine cards under

Thi

d

l d df

The Closed Door, 1940-1950

TABLE 15 Cancellation of IBM Patents by the Japanese Government during World War I1 Patent No.

Classification

Date of Patent

Date Annulled

136884 Cutting Machine June 12, 1940 October 19, 1942 Description: Machine for making tabulating cards from paper rolls. December 10, 1940 Electric Misc. Apparatus Description: Tabulating machine.

March 25, 1943

141503

February 4, 1941 Electric Misc. Apparatus Description: Improvement on counting machine.

March 25, 1943

145379

March 25, 1943

140320

Electric Misc. September 8, 1941 Apparatus Description: Improvement on tabulating machine.

146265 Electric Clock Description: Clock device.

October 24, 1941

March 25, 1943

Source: RG 331, Box 3801. Notes: IBM had applied for all these patents by November 1940-well before Japan Watson assets had been frozen. The government annulled the above patents through provisions of the WLIPR.

the supervision of the former head of Japan Watson's card plant.95 Moreover, JTM then embarked on the wholesale manufacture of IBM machinery. At first, the company made a type of hand-punch machine it dubbed the Model 001, and then managed to copy IBM's horizontal sorters, mechanical key punches, and verifiers.96 Toshiba would hold exhibitions of these domestically produced models at its head offices. Indeed, in November 1943, JTM even embarked on the test manufacture of a tabulating machine at the Komukai factory. A prototype, copied from an IBM machine and called the 3B, was soon completed, but JTM did not manage to begin regular production before the plant burned down towards the end of the war.97 JTM proved highly successful during World War 11. Its customer

Thi

d

l d df

The Closed Door, 1940-1950

base increased substantially in the early 1940s and, before Japan's surrender, had come to include parent Toshiba and two of the Nagoya works of MHI, in addition to new government agencies and prewar clients. Revenues from rental fees similarly increased during the, period of hostilities, and the company turned a profit and paid a dividend for every period of its wartime 0peration.9~ Utilization of Japan Watson resources did not stop there. Kanegafuchi Industries (now Kanebo), for example, recruited a number of former Watson engineers and, with government assistance, manufactured motors, horizontal sorters, verifiers, and mechanical key punches based on IBM patents and IBM machines.99 And Andij Kaoru, Kitagawa Sijsuke, and Shimamura Kij-all former Watson employees-created an organization they called the Statistics Research Institute to work on methods to improve the domestic manufacture of IBM clones.100 The government found a special use for Mizushina Kb. First imprisoned and later detained for a time under house arrest as a suspected spy because of his close association with the U.S. company, the former Managing Director of Japan Watson was approached by the military authorities through Uchiyama Jir$ a professor at Tokyo Imperial University and a close personal friend. Uchiyama said he could not go into the details, but asked if Mizushina would help out with a Navy research project in Kobe. "If you go," the professor said, 'ryo~'llunderstand."lOl Mizushina went. When he arrived at the Toba factory of Kobe Steel in May 1943, he found an advanced IBM tabulator in recognizable condition but badly in need of repair.102 The Navy-which had found the machine in an underground bunker on Corregidor after the U.S. Army had surrendered there to Japanese invasion forcesbelieved that the Americans might have used the machine to break Japanese military codes. The Navy therefore brought the machine back to Japan by destroyer and, together with IBM machines taken from other occupied areas, including an IBM demonstration machine found in IBM's Shanghai showroom, transported it to the Kobe factory.103 At the Navy's "request," Mizushina spent the rest of the war trying to reverse engineer the IBM tabulator, for the Navy-

Thi

d

l d df

The Closed Door, 1940-1950

seeking to improve its own encoding capabilities-hoped that Mizushina could eventually reproduce the machine once he had taken it apart. This he had not succeeded in doing before his release on 15 August 1945.1°4 OCCUPATION. The Allied Occupation brought new changes to IBM's status in Japan. The comparative positions of IBM and its principal competitor in the tabulating-machine business, for example, shifted considerably in the early postwar period. Although Powers remained a major force in the Japanese market in the late 1940s, its share had begun to decline even before the end of the war for at least two main reasons. First, Allied air raids destroyed many more Powers machines than IBM models, because in wartime Powers was still the preferred make among Japanese government customers, whose plants came under especially intensive Allied attack.105 Since replacement of machines in wartime was practically impossible, Allied bombers had quite literally destroyed a large part of Powers's market share. Second, the local organization which supported Powers products, Mitsui & Co., ran into serious difficulties of its own. Part of Mitsui's troubles stemmed from its loss in 1943 of the services of the central figure who had promoted Powers machines in Japan since the 1920sYoshizawa Shinzaburb of Mitsui & Co.5 Machinery Division. Mitsui had transferred Yoshizawa to (former Otis Elevator affiliate) Oriental Engineering Industries in 1943 to head that organization. (See below.) By the time the Occupation had gotten under way, Yoshizawa's absence from the Machinery Division had led to a decline in Mitsui & Co.5 support services for users of Powers machines, which led to growing customer dissatisfaction. Another part of the firm's troubles began when the great Mitsui economic combine, of which Mitsui & Co. was a prominent member, became a central target of SCAP's zaibatsu-dissolution program early in the Occupation period. For a time thereafter, Powers customers in Japan simply had no organization to which they could turn for service. Yoshizawa left Oriental in May 1947 and established Yoshizawa Accounting Machine to service and repair old Powers machines, but it was not until July 1948 that a representative of the American com-

Thi

d

l d df

The Closed Door, 1940-1950

pany (by now renamed Remington Rand) concluded a contract with Yoshizawa to provide support for the Powers models.106 In the meantime, Remington had lost considerable market share in Japan to its old rival, International Business Machines. The early postwar history of IBM in Japan is really two histories, for two different organizations served two different markets for IBM products during the first years of the Occupation. Japan Tabulating Machine did not let the termination of the war interrupt its business operations: The 16 Japanese institutions that rented machines from May 1945, for example, were still on the books in October 1945. Moreover, after an initial drop in customers, public and private demand for tabulating equipment accelerated, so that by 1948 the number of JTM clients had actually increased from the wartime era. JTM continued to rent most of its machines to the same lifeinsurance companies and government agencies it had leased to during the war, and by 1950 had added to this list the Special Procurement Board, MITI, and the Statistical Bureau attached to the Office of the Prime Minister. In addition, IBM's wartime clone continued service and repair operations, and, from November 1945-after it had shifted surviving card-making machines to a new location in Shizuoka prefecture-JTM resumed the manufacture of punch cards. Indeed, business was so good that, even in the confusion of the early postwar period, JTM initially managed to turn a profit and pay dividends.107 Yet difficulties at JTM were not far off. For one thing, the authorities designated parent Toshiba a holding company subject to economic deconcentration under Occupation regulations. The official Holding Company Liquidation Commission (HCLC), a Japanese agency created in July 1946 to implement the zaibatsu-dissolution program, took over Toshiba's 12,000 shares of JTM by September 1947, leading to restrictions and uncertainties for the tabulatingmachine company, and causing the wholesale exodus of employees sent to JTM from Toshiba.108 For another, SCAP and the Japanese government soon ordered JTM to return all the machines and other properties it had acquired from IBM after the outbreak of the war, together with all the royalties and dividends owed to IBM for the period when JTM used these properties. By the time these transfers

Thi

d

l d df

The Closed Door, 1940-1950

had been completed, in April 1950, JTM had completely exited from the tabulating-machine industry.109 Whereas JTM supplied Japanese customers with IBM equipment in the early postwar period, IBM itself provided the tabulators to Allied personnel in Japan. Having been closely associated with the U.S. military before and during World War 11-IBM from 1940, for instance, had helped develop for the Navy a calculating device later known as the Mark I, and, in 1944, had worked with the Army on other projects-it was not at all surprising that IBM would continue its association with American forces after the war as well. In addition, once the Occupation was under way, non-military Allied personnel found that they had at least as great a need for IBM equipment in Japan as did the armed forces.l1° Occupation personnel demanded IBM machines for a variety of uses. The U.S. Sixth and Eighth Armies, for example, installed IBM machines in Machine Record Centers (MRCs) and Machine Record Units (MRUs)-mobile trailers outfitted with generators and office equipment-which they stationed throughout Japan to administer supplies, personnel affairs, and related matters.lll The United States Strategic Bombing Survey (USSBS) also chose to use IBM machines in its work. Having just completed their survey of Europe, where most statistical calculations had been performed manually, USSBS officials were determined that in the Japanese survey they would make the operation more efficient by taking advantage of modern tabulating devices.112 And SCAP's Economic and Scientific Section (ESS) initially sought IBM tabulators to compile surveys of the Japanese economy and, later, to administer the economic reform programs.l13 To fill these various needs, the Occupation forces sought to acquire large numbers of IBM machines together with people who could operate them. Although the U.S. Army managed to import into Japan a sufficient quantity of the calculating devices to meet its own initial needs, USSBS and SCAP were not quite so fortunate; they managed to acquire some IBM equipment through the U.S. Army, but Occupation personnel also approached life-insurance companies in Tokyo, Osaka, and elsewhere to lend them machines on a short-

Thi

d

l d df

The Closed Door, 1940-1950

term basis to satisfy pressing deniands. Staffing the USSBS and SCAP operations proved even more challenging. Although limited numbers of IBM technicians had accompanied the U.S. Army to Japan, massive work loads and short deadlines at the offices of the Bombing Survey and ESS in particular obliged the early Occupationaires to go beyond their own numbers and seek out qualified Japanese. By the middle of September 1945, former Japan Watson employee And6 Kaoru, for example, had been hired by USSBS, and SCAP also soon hired and trained a number of other Japanese with some experience in the industry.114 When USSBS finished its work, And6 moved to the ESS computing center, which by mid-1948 employed some 120 people to operate the IBM machines.115 The Occupation's use of IBM equipment in Japan proved a boon to IBM's local fortunes for a number of reasons. First, Allied personnel demonstrated to the Japanese through their own activities that IBM machines could be used to accomplish a great variety of tasks to which the Japanese had never thought to apply these devices. Indeed, the realization by Japanese government and industry officials of the tremendously wide range of applications these machines could be used for had begun to stimulate greater Japanese demand for tabulators even before the end of the Occupation. Second, Occupation personnel trained significant numbers of Japanese workers to use and maintain IBM machines. After these workers had left SCAP and joined Japanese enterprises, they would seek IBM machines in particular because they were more familiar with them than with any of the competing models. Third, the importation by Allied forces of new IBM equipment and spare parts immediately after the war increased local supplies of IBM products at a time when the authorities barred imports of tabulators produced by competing overseas companies. And fourth, the heavy use of IBM machines by SCAP, together with the intimate involvement of IBM personnel in their operation and support, helped the American company develop an unusually close working relationship with the Occupation forces and, through them, with the Japanese government. This may account in pan for the relatively early official approval of IBM's postwar investment in Japan, and for the rapid settlement of the company's war-damage claim.116

Thi

d

l d df

The Closed Door, 1940-1950

~

These factors helped the company to overtake Powers in Japanese market share during the Occupation-the first time IBM had managed to do so. IBM began to look into the status of its prewar Japanese interests well before either JTM or the Occupation machinery had stopped functioning. The American company learned about the condition of its properties after the war with unusual speed, for many of its personnel had gone to Japan with the Allied forces. Thus, whereas many U.S. firms would have to wait until SCAP liberalized entry requirements before getting first-hand reports on their Japanese investments, as early as 1945 IBM employees on temporary loan to the Occupation were able to inform their company's New York headquarters about the fate of the local company. Moreover, the early involvement of IBM personnel in the Occupation helped to minimize further damage to the company's local interests before restoration could be effected. O n 10 December 1945, Charles M. Decker, an IBM employee on loan as a Technical Sergeant with the Urban Areas Division of USSBS in Japan, for example, appealed to SCAP's Government Section to see to it that JTM ~roduceno more IBM clones: "It has come to my attention," he wrote, "that this company UTM] has applied through [Toshiba] for permission to manufacture IBM equipment here in Japan. This is contrary to all IBM's policies and patent rights. It is hoped," Decker concluded, "that General Headquarters will not grant such permission.""7 SCAP acceded to IBM's request. Restoration efforts followed shortly thereafter. T. Kevin Mallen, IBM's Far East General Manager, arrived in Japan in mid-1947 as the company's first official postwar representative, and immediately began to seek restoration of IBM properties. Following the issuance, between September 1947 and June 1948, of some 15 official reports describing the complex history of IBM in Japan after Pearl Harbor, Mallen and his assistants filed a series of demands for the return of assets owned by the parent company and its local subsidiary. Mallen first was able to withdraw funds from IBM's SPAA account in mid1948, and JTM paid the American company accrued royalties that November. Thereafter, JTM periodically would credit royalties to

Thi

d

l d df

The Closed Door, 1940-1950

IBM for postwar machine rental fees until the Japanese company was forced to return the equipment it had acquired in war. O n 31 March 1950, the IBM subsidiary in Japan regained its tabulators, cardmaking machinery, office furniture, and other items previously held by JTM.118 IBM determined at a remarkably early date that it would seek to re-enter Japan and resume prewar operations. It is true that Mallen, who had been charged with charting a new strategy for the Japanese market, had advised New York shortly after his arrival in Tokyo in 1947 that IBM should delay appointing a local agent until early postwar political and economic stability had improved.119 However, even then he did not consider whether IBM should resume operations in Japan, just when.120 Indeed, by February 1948, Mallen flatly declared to SCAP's Assistant Adjutant General that "it is our intention ,to reopen our business in Japan at the earliest date."l21 In technical legal terms, IBM resurrected its Japanese subsidiary, now called Japan International Business Machines (IBM Japan) in August 1949, but the subsidiary did not fully resume operations until the following Apri1.lZ2 Although the authorities did not block the re-entry of IBM as a wholly foreign-owned direct manufacturing investment after World War 11, they did place important restrictions on the relationship between the U.S. parent and its Japanese subsidiary. To strengthen its local company at a time of rapid inflation, IBM elected to infuse new capital into its original prewar investment. The firm therefore recapitalized the subsidiary three times before the end of the Occupation, each time using yen-denominated funds acquired from JTM as repayment for royalties Japan Tabulating had earned while leasing IBM equipment. (See Table 16.) By the time those postwar investments had been completed, they represented more than 98 percent of the total capital of IBM Japan.lZ3In a narrow, legal sense, the Japanese government officially approved (or "validated") each of the three early postwar IBM recapitalizations of its local company. The authorities approved the first two recapitalizations under Cabinet Order No. 51, the operative public measure dealing with foreign investment in 1949, and the last of the three IBM investments in October 1950 under the newly created Foreign Investment Law (FIL).l24 (See below.) '

Thi

d

l d df

The Closed Door, 1940-1950

TABLE 16 The Early Postwar Recapitalizations of IBM Japan (current yen) --

IBM Japan Recapitalizations

Royalty Payment from JTM Payment Date Amount

Date of Increase

Amount 13,185,600

25 February 1949

6,339,255

25 August 1949

6,826,438

1 November 1949

30 January 1950

8,758,254

29 March 1950

8,758,200

18 April 1950

7,356,708

26 October 1950

7,356,700

Source: Nihon IBM (IBM Japan), Nihon IBM gojiinen shi (A fifty-year history of IBM Japan), p. 89. Notes: The discrepancy of 19,907 yen between the sum of the two 1949 JTM royalty payments and the IBM Japan capital increase of that year apparently represents the amount invested by two IBM officials as individual investors. In addition, IBM apparently rounded down to the nearest hundred its recapitalization payments from the royalty fees it received from JTM.

Yet major public controls continued to restrict IBM's investment in Japan in peace as in war. These controls included conditions attached by the Japanese government to the approvals under Cabinet Order No. 51 and the FIL which deprived the American company of perhaps the single most important guarantee sought by virtually every foreign investor in this period: the right to remit dividends abroad to the parent corporation. In addition, the government blocked remittances to the U.S. parent of patent royalties from the Japanese subsidiary on the grounds that the technical-assistance agreement between IBM and its local subsidiary, concluded before the war, had not been legally approved under the postwar rules. And finally, the authorities prevented IBM from expanding into any line of business outside its specific prewar activities. All of th&e restrictions would remain in effect until IBM successfully bargained for greater market access and foreign-exchange remittance privileges a full decade later.125 (See Chapter 4.) OTIS ELEVATOR BACKGROUND: INITIAL CONTACTS. Otis Elevator is one of America's

oldest multinational enterprises. Founded in 1853, the firm exported

Thi

d

l d df

The Closed Door, 1940-1950

lifting machines at least as early as 1862, and was carrying on an overseas trade involving some 30 nations before the close of the century.Iz6 A Foreign Department managed the export business from 1907, and, before World War I, Otis elevators made in Yonkers operated in the Eiffel Tower, the Hungarian Royal Palace, and the Kremlin.lZ7Much of the early foreign business was conducted through agency agreements with overseas importers and retailers, but foreign direct investments were not long in coming. Otis undertook the first such investments when it opened representative offices in the principal European markets and, from 1911, began to manufacture there as we11.128 The American company often chose to expand abroad through joint ventures, such as its investments in Atelier Otis-Pifre (Paris, 1910), Otis Aufzugswerke Gesselschaft (Berlin, 1912) and Waygood-Otis (London, 1914). World War: I severely limited the European business, however, and from about 1915 the Foreign Department turned to South America and then East Asia for new markets.129 Given the modest height and wooden construction of traditional Japanese buildings, it is surprising that the manufacture of elevators began in Japan as early as it did. "There are not many buildings in Japan where elevator service is required," a U.S. official reported in 1918, "the frequent earthquakes causing the erection of low structures, as a rule."l30 Yet the construction of the great banks, government buildings, and department stores of Western design, materials, and scale did stimulate a modest demand for elevators and other ~ Japanese entrepremechanical lifting devices from the 1 8 9 0 ~and neurs made efforts to meet this demand after the turn of the century. The Japanese architect Tamatsu Kbji began to look into the technical challenges of producing elevators in a shop in Osaka in 1911, and demonstrated what is believed to be the first elevator of domestic manufacture in an Osaka amusement park two years later."' His efforts gradually improved the sophistication of his product, and, in 1919, Japan Elevator Manufacturing was established with Tbmatsu's workshop at the heart of the operation.132 Japanese-controlled Imperial Elevator Manufacturing and Japan Crane Manufacturing also entered the industry by 1921, but not until after the Great Kanto Earthquake in 1923 did the domestic industry really begin to grow.133

Thi

d

l d df

The Closed Door, 1940-1950 Although they could not manufacture elevators to match the best examples produced by foreign companies, a number of other Japanese firms also had managed to enter the business by the end of the 1920s, and between 1929 and 1931 their average annual elevator production was valued at about 1.5 million yen.134 Still, many of the parts were imported from the United States, Great Britain, and elsewhere, and the finished products were little more than low-priced, low-quality imitations of foreign machines.135 More significantly, both Hitachi and Mitsubishi Electric entered the field in 1931-the latter through the importation of Westinghouse technology-and, with the benefit of increasing government assistance, the domestic Japanese elevator industry gradually began to challenge imported machines.136 Yet foreign elevators dominated the Japanese market through the 1920s and beyond. Virtually all the elevators installed in Japanese buildings until 1920, for example, were of either American or British manufacture, and imports continued to hold the lion's share of the market throughout the decade. Less than 15 percent of new elevator installations by 1922 used Japanese products, and almost all of these were produced by T6matsuYsJapan Elevator Manufacturing. Waygood-Otis and Wadsworth Elevator of Great Britain were represented in Japan at various times during the years before the 1923 Kanto Earthquake, as were the American firms Otis, A.B. See, Haughton, Warner, and General Elevator. Still, just one producer, Otis, outsold all others during these years by a very wide margin.13' Japan was an early Otis customer and soon became a major Asian destination for the company's exports. For example, Otis shipped to Tokyo in 1891 four of its advanced hydraulic elevators at the request of the Bank of Japan.138 Almost every major building which used an elevator in Japan during that era used an Otis elevator; even before World War I there were Otis machines in the head offices of the Mitsui Bank, the great Mitsukoshi Department Store, the Japan Life Insurance Company, and elsewhere.139 Indeed, Otis had manufactured fully 300 of the 386 electric elevators in use in Japan in 1922, at which time no other single company had made more than 35.I4O Success in the Japanese market rested in large part on the quality,

Thi

d

l d df

The Closed Door, 1940-1950

reliability, and technological sophistication of the Otis productsome Japanese even used to joke before World War I1 that the Japanese pronunciation of Otis (ochisu) sounded strikingly similar to the Japanese word that means "doesn't dropy'(ochizu)-but the company was also assisted by two other factors. First, Otis took the initiative in arranging a deal with its most serious potential rival, the British firm Waygood-Otis, in which Otis held a substantial equity stake, to limit their competition in the Japanese market. "I now wish to submit to you a plan for handling the business in Japan," wrote Otis President Baldwin from New York in 1915 to Waygood-Otis Managing Director Green in London, "which will prevent conflict of our interests there."l41 Otis's Japanese agent at the time, the American Trading Company (ATC), reported that Waygood posed the most formidable challenge to Otis in Japan, and that this British company was represented there by Mitsui & Co. Yet Mitsui also acted as agents for other foreign elevator companies, which meant that the Japanese trading firm might not market Waygood-Otis products as vigorously as it otherwise could. Baldwin thus proposed to Waygood-Otis a deal: That you give the American Trading Company in Japan. . .the exclusive agency for your machines, our mutual understanding being that they will sell both New York and London types of machines as demanded by their customers. At the end of the year your Company and ours will each furnish the other with a statement of the business done with the American Trading Company, and the Company which has done the largest amount of business during the year will pay to the other a sum equal to five per cent (5%) upon the difference in the amount of business done.142

The British company not only accepted the proposal, but elected to withdraw from the Japanese market altogether and simply collect the 5-percent fee from the American firm.143 Otis would begin to pay Waygood-Otis an annual sum from 1916.144 In addition to the terms of this agreement, Otis also benefited in Japan from the unusually able local representation by the American Trading Company. A New York-based commercial house with offices in Tokyo and other major Japanese cities, the ATC long had operated in the Asian market. ATC began to act as Otis general agent

Thi

d

l d df

The Closed Door, 1940-1950

in Japan before the turn of the century, and committed substantial resources to its effort.145 Yet, to describe ATC's activities under its arrangement with Otis as mere "importing" would be highly misleading. Under its successive accords with Otis, ATC not only bought Otis machines in New York and imported them into Japan, but also distributed, sold, and installed them there, and maintained a complete stock of elevators and replacement parts to meet local demand quickly and efficiently146 To handle the business, ATC organized an elevator department headed by an Otis-trained manager, and, by 1922, the department had an international staff of 36, including salesmen, draftsmen, inspectors, and an elevator erector crew of 22.14' Despite ATC's solid performance, however, Otis opted to change its representative to a powerful and well-connected Japanese organization to further strengthen its market position.148In July 1926, Mitsui & Co.-the same firm which had lost the Waygood-Otis contract at Otis's urging a decade before-signed a managership agreement with Otis to run the American firm's Japanese business. Under the terms of the contract, valid for 5 years from January 1927, Mitsui would provide "executive services and office space and facilities" to fulfill its role as the exclusive agent in the Japanese Empire for Otis products. In exchange, Mitsui would receive 40 percent of the net profits, together with a small share of the proceeds from sales and related services.149 The agreement further specified, most significantly, that Mitsui would not market the products of Otis competitors.150 Otis concurrently terminated its earlier arrangement with ATC, and opened its own Japanese branch office when the contract with Mitsui came into effect. Mitsui and Otis personnel together managed the new office, and, as part of the agreement terminating the ATC agency, Otis hired all the members of ATC's elevator division.151 Changing Japanese government policies and general popular attitudes, however, finally persuaded Otis to establish a joint venture with Mitsui & Co. to manufacture locally. Such a venture first appeared attractive after the authorities raised tariffs on imports of elevators and elevator ~ a r t s . In 1 ~addition, ~ the government began to favor domestic producers through a variety of subsidies and by procuring elevators for its own use from the domestically owned Japan

Thi

d

l d df

The Closed Door, 1940-1950

Elevator Manufacturing. And, moreover, locally stationed Otis managers detected rising Japanese sentiment supportive of domestic rather than foreign products. "In view of the tremendous prejudice which exists against Americans on the part of the Japanese," Otis representative C. P. Grandgerard had asserted in a confidential June 1931 report to his superiors in New York, "the only way to handle the business is by a Japanese corporation in which Otis [and] the Mitsui people" own a joint interest.153 The Mitsui interests proved no less eager .to conclude such an arrangement with the foreign company, for Japanese government policies also threatened Mitsui's business. The Machinery Division of Mitsui & Co.'s 1926 meeting of branch managers had concluded that government tariffs and other forms of protection for native manufacturers threatened its import business in a number of fields, and that forming joint ventures in Japan with foreign manufacturers was one way to remain competitive with domestic producers. The new T ~ y Otis 6 company would become another example of what the Japanese press dubbed "Mitsui & Co.5 Tijya Strategy" (Bussan no tGy6 seisaku) of joint venturing with foreign capital to maintain domestic market share.154 Otis and Mitsui hammered out a joint-venture arrangement soon after Grandgerard had submitted his report in mid-1931. To protect its position in the Japanese market, however, Otis insisted on a controlling interest. Indeed, Edwin W. Sims, an American lawyer who acted as Otis counsel during the Mitsui talks, and who had long experience negotiating contracts with Japanese firms, had warned in June 1931 about the dangers to Otis if ever the American firm lost effective control of the new joint venture: The Otis Elevator Company has something the Japanese want, i.e. mechanical skill and knowledge of the elevator business. If ever they get that they will do no business with us at all; therefore, for the present time while they are getting the skill and knowledge it is imperative that Otis control the company, no[t] merely nominally, but actually.155

Based on its dominant position in the elevator industry, Otis managed to persuade Mitsui that the ownership of the new venture

Thi

d

l d df

The Closed Door, 1940-1950

should be 60 percent Otis and 40 percent Mitsui, but so strongly did Mitsui resist Otis control that the final accord specified that the vote of at least 4 of the 5 directors would be required to determine official company policy. Since Mitsui could appoint 2 of the 5 directors, in terms of management control the resulting arrangement had more the character of a 50/50 joint venture than a majority Otis-owned enterprise.156 The new company, T6y6 Otis Elevator, was incorporated under Japanese law in January 1932 "to engage," in the words of the formal agreement, "in the business of manufacturing, selling, buying, installing, repairing, inspecting and maintaining elevators, escalators and other hoisting apparatus."l57 T6y6's first factory, located in Kamata on the outskirts of Tokyo, was already under construction before the close of the year. Otis's joint-venture strategy did not, however, alleviate all its problems in Japan during the 1930s. Despite T6y6's reputation for producing the most advanced elevators in Japan before the war, the Navy, for example, turned to Japan Elevator Manufacturing, the leading domestic elevator producer without a foreign-capital connection, to produce plane lifts for aircraft carriers. And, as the government's "Buy Japanese" campaign intensified, officials chose Japan Elevator over T6y6 Otis for most public construction projects, including the new Diet building.158 To participate in such government-funded elevator projects, Otis temporarily transferred some of its shares in T 6 p Otis to the ranking Japanese member of the joint enterprise, Motokawa Ichir~i,which changed the Japanese company into a roughly 40/40/20 Otis Elevator/Mitsui & Co./Japanese Topa Otis employee venture.159 The U.S. company, however, took back the Motokawa shares-over the strong objections of Mitsui-after the government in 1938 had banned further manufacture of civilian elevators to concentrate on the production of military goods.160 Moreover, like other American-owned assets, the Japanese government froze Otis's shares in the joint venture in July 1941. C. I?. Grandgerard, the American manager, and all other non-Japanese Otis employees had fled Japan by that fa11.161

Thi

d

l d df

The Closed Door, 1940-1950 WAR. In

contrast to IBM's wartime experience, Otis's local subsidiary was not shut down by the authorities in the early 1940s apparently because the elevator maker had operated as a joint venture with Japanese capital before the onset of hostilities. The government did, of course, expropriate Otis assets in Japan shortly after Pearl Harbor. But, since T6y6 Otis was only partially owned by United States interests, MOF declared only those shares owned by Americans as "enemy property." To manage this property, MOF appointed the Yokohama Specie Bank as administrator in early 1942. The Ministry then ordered Mitsui & Co. in April 1943 to nullify Otis's shares in the joint venture, and to issue new shares in the enterprise equal to the equity represented by the (now invalid) stock certificates held by the American firm.162 Mitsui immediately purchased its newly issued shares, and deposited yen-denominated funds in Otis's Special Property Administration Account to compensate for the roughly 60percent American interest in the (former) joint venture. By late April 1943, that venture had become 100 percent Japanese.163 (See Table 17.) Mitsui & Co. profited greatly during the war by operating the old Otis affiliate to serve the Japanese military. Mitsui installed its own board of directors when it took complete control of the venture, by which time this venture had been designated by the Navy as an official military supplier, and the name changed to Oriental Elevator, apparently to "disassociate itself," according to one source, from any "foreign connotation."l64 Products also changed. At first, Oriental manufactured elevators designed to lift Japanese Navy planes onto the flight decks of aircraft carriers, and then began to produce steering equipment and anchor windlasses for coastal defense ships as well. Business developed better than Oriental and Mitsui could have imagined. 'With the protraction of the war, the demands of military equipment for expanding military facilities, munitions factories, and shipbuilding yards have been continuously increasing, and our forecast made at the beginning of the year was pleasingly exceeded by approximately 45 percent," Oriental noted in its Eleventh Business Report for the 1942 calendar year. "In the service field as well, results exceeded forecasts by a little more than 10 percent."165 And, in its succeeding business report, Oriental could state that, thanks to "ever

Thi

d

l d df

The Closed Door, 1940-1950

TABLE 17 Ownership of Shares in Otis's Japanese Afiliate during World War I1 1941

1942

Otis Elevator Mitsui & Co. C. P. Grandgerard C. K. Kirkbride 1. Motokawa T. Murakata

23,600 15,600 100 100 100 100

23,600 15,600 100 100 100 100

Total Shares

39,600

39,600

Shareholder

1943

1944

1945

0

0

0

39,400

39,400

0

0

39,400 ,

0

0

0

0

100 100

100 100

100 100

39,600

39,600

39,600

Source: Adapted from RG 331, Box 3808. Note: The 4 Toyo Otis officials (2 Japanese and 2 American) who held 100 shares of stock each were nominal shareholders; they owned these shares in order to satisfy Japanese legal requirements that all promoters of a joint-stock company hold equity in that company. All the US. shareholders technically owned stock in the Japanese enterprise until 19 April 1943.

growing demand for elevators from the Army and the Navy," the results "have far exceeded our forecasts."l66 Even in late 1944, the company managed to declare a dividend.167 Yet the efforts of management to exploit to the fullest the productive capabilities of the former Otis affiliate failed to stem a decline in the company's fortunes as military reverses mounted. By 1944, the company, now called Oriental Engineering Industries to reflect its changing mix of products, already had begun to suffer from shortages of personnel and raw materials.168 In fact, scrap metal had become so precious in Japan that the company was told to dismantle passenger elevators so that the parts could be melted down to meet critical military needs. Moreover, from early 1945, Allied B-29's firebombed the Oriental plant and its industrial environs with increasing frequency, which further slowed production schedules. "After one incendiary raid," it was reported, "it took the [main factory] building three days to cool 0ff."169 Oriental then bought a small factory nearby in the hopes of shifting some of its military production there, but, less than a week later, further Allied bombing had so thoroughly destroyed this factory that what remained of the site, accord-

Thi

d

l d df

The Closed Door, 1940-1950

ing to one account, was little more than a "hole in the ground."l70 Towards the close of the war, one massive Allied air raid destroyed some 80 percent of Oriental's manufacturing facilities. Yet even as the nation's leaders were negotiating for peace, the company was "working like crazy" with machine tools repaired after this latest raid, according to the Otis Japan company history, to fill a Navy order for 60 submarine periscopes.171 OCCUPATION. The difficulties at Oriental were typical of those experienced at the other "elevator" companies at war's end, but the industry began to revive, thanks in large part to the actions of SCAI? To set .up temporary quarters, in the fall of 1945 Occupation personnel requisitioned many of the largest buildings in Tokyo and Osaka which had survived the conflict. Yet SCAP faced a vexing problem: Many of these structures did not have working lifts.172 "Buildings without elevators," General MacArthur had declared, "are worthless," and so the Occupation authorities directed that old elevators be repaired and new ones installed.173 The U.S. government requested that Otis send an elevator specialist to Japan to expedite matters, and, by February 1947, an American engineer from Otis who had worked at the T6y6 venture before the war had set up an Elevator Section in Demand for elevator repair and manufacture soon exceeded prewar levels, and, by the end of the Occupation, numerous though technologically less competitive Japanese firms, such as Hitachi, Mitsubishi Electric, Japan Elevator, Nakajima Transport, and Fuji Elevator Industries, in addition to T6y6 Otis were operating in the domestic market.175 The Japanese elevator industry, T6y6 included, had begun to lift itself back up.'T6 Allied air raids and shortages of men and materials had drastically curtailed operations at Oriental towards the end of World War 11, but the former Otis affiliate remained in business throughout 1945, and beyond. Immediately after the war, some of the workers used the factory presses to fashion crude frying pans, boilers, and the like, while others repaired damaged machine tools and cleaned up the interior of the firm's Kamata plant. Soon the company managed to gain renewed access to critical suppliers, and business gradually revived.177 "T6y6

Thi

d

l d df

The Closed Door, 1940-1950

Otis people are pitching in," wrote an Otis representative from Tokyo in 1948. "They are working long and hard and intelligently under extremely difficult conditions."l78 Public intervention, however, soon created numerous problems for the old Otis subsidiary. As part of SCAP's program to democratize the Japanese economy by breaking up the great zaibatsu combines, the Occupation authorities designated Mitsui-owned Oriental a "restricted concern" in December 1945. Under this designation, Oriental had to obtain permission from the authorities each time it sought to undertake significant changes in its financial structure and related Next, the Holding Company Liquidation Commission took control of all the shares of the company (renamed T6y6 Otis Elevator, in 1948) owned by Mitsui. The HCLC held 60 percent of these shares for eventual return to the U.S. company, but planned to liquidate Mitsui's 40-percent share in T6y6, which dated from the prewar period. Finally, T6y6 was designated under the Enterprise Reconstruction and Readjustment Law (ERRL), which required that the elevator maker submit for the approval of MOF and the MCI a plan to reorganize the firm in a manner consistent with the government's war indemnities cancellation and other programs.lS0 Not until the end of 1948 did T6y6 Otis gain the government's final approval for reorganization under the ERRL.lgl Despite these and other difficulties at its former Japanese subsidiary, however, Otis Elevator moved aggressively to obtain information about its prewar investment. The company wrote to the U.S. War Department in September 1945 asking for an investigation of T6y6, and an Otis representative attended the meeting of American businessmen with prewar Japanese interests held at India House in New York that November. The first detailed reports came from two former Otis employees who had gone to Japan with the Occupation forces, but Otis could not undertake a truly thorough examination until SCAP permitted the re-entry of Allied commercial representatives. Almost two years after the end of the war, SCAP in August 1947 included C. I? Grandgerard, the prewar Toy6 Otis head who now served as Otis's Far East Regional Manager, among the first group of Allied businessmen allowed to enter Japan.lS2

Thi

d

l d df

The Closed Door, 1940-1950 The American elevator company began to chart a new course for the Japanese market even as it pursued restoration, yet no final decisions could be made until more questions had been answered. O n his visit to Japan in 1947 and then again on a return trip the following year, Grandgerard met with T6ya personnel, visited the Kamata plant, and spoke with SCAP officials in the ESS and the Civil Property Custodian (CPC) to assess the local elevator market and Otis's options within it. Grandgerard came armed with questions. What was the status of the T6yb Otis company, the condition of the factory, the extent of T6y~'smanufacturing and sales operations, and the number and activities of its branch offices? Who among the prewar Japanese staff were still "available''? What was the state of T6y6's competitors? Would SCAP adopt a cooperative attitude towards Allied business activities as the Occupation progressed? After a thorough investigation of these matters in 1947 and 1948, Grandgerard decided that the time was not yet right for Otis to re-enter. Varied and far-reaching public controls, together with the precarious state of the Japanese economy in general and Toy6 in particular, had led the Far East Regional Manager to this conclusion.183 Yet Otis continued to monitor conditions in and ask questions about the Japanese market, and would come to a final determination of postwar strategy by the end of the decade. Otis officials in New York headquarters defined 4 options for reentering the market. (1) The company could resume local manufacturing along prewar lines. (2) Otis could convert T6y6 into a service and repair organization which would import equipment from the American parent. (3) Otis could merge its local affiliate with an existingJapanese elevator producer that possessed adequate manufacturing facilities. (4) Otis could license its technology and take a minority position in aJapanese elevator company.lg4By early 1950, Otis officials had settled on the first option, and American managers began to craft new plans to restart local production.185 Moreover, Otis management then decided to seek an expanded presence in Japan by attempting to buy out the shares held by its Japanese partner. This decision was based on Otis's confidence that it could continue to operate successfully without the support of its erstwhile domestic ally:

Thi

d

l d df

1

The Closed Door, 1940-1950

It may have been necessary for us to tie up with a big enterprise Iike Mitsui at the early stage of organization to establish ourselves (Toy6 Otis) in the then new Japanese market. The name of T O ~ Otis O (actually Otis) is now well established since the war's end as an independent company not being connected with any of the former Zaibatsu influence. So, it would do us more harm rather than benefit if we tried to tie up with any particular or specific financial or business influence in Japan.lg6

When Otis Vice-president Douglas flew to Tokyo in April 1950 to announce Otis's intention to buy the Tijyb shares formerly held by Mitsui but now in the hands of the HCLC, he encountered resistance from an unexpected quarter. Otis's former joint-venture partner, for its part, could do little to block the move, for the Mitsui interests were themselves in the process of being liquidated. T a p Otis managers and workers, however, had hoped for some time that they could purchase the Mitsui shares from the HCLC, and when they learned of the Otis decision, they vigorously opposed the plan. The leader of the recently formed T6y6 Otis labor union, for example, appealed directly to Vice-president Douglas on both practical business and nationalistic grounds: If your company completely acquires this organization, our market position may decline precipitously. If our customers in Japan learned that all of our profits were being taken abroad, as a matter of national sentiment they would quickly discontinue doing business with us. Moreover, our competitors might very well use this situation against us. The reality is that we employees think [that a complete Otis acquisition of our company] would deny both our individual pride and our national pride. If Otis's plan is realized, we are deeply fearful that the attitude of the union members could clearly change.187

Douglas, however, ignored these appeals and managed to gain public authorization by the end of the Occupation. The HCLC approved the Otis request to buy Mitsui's 40-percent share late in the spring of 1950, on the grounds that the acquisition would encourage the postwar revival of T q a Otis business.188 The Committee also approved the return of Otis's original 60-percent stake in the local affiliate after enactment of procedures to transfer Allied shares held by the Com-

Thi

d

l d df

The Closed Door, 1940-1950 mittee to their original owners. Government authorization to remit certain funds abroad was granted shortly thereafter.189 Like IBM, Otis represented a postwar "success" story in Japan, yet even Otis was unable to avoid significant restrictions. Following wartime controls, initial Occupation regulations prevented the entry into Japan of Otis representatives to inspect the company's prewar investments and reassess the market. The authorities eased regulations later in the decade, which enabled Otis to resume its commanding position in the local elevator industry and even to acquire Mitsui's equity in the Japanese affiliate, yet this relatively relaxed control placed important restrictions on Otis in the Japanese market. Specifically, the authorities effectively barred Otis from entering related fields of activity without their express approval, guaranteed Otis the right to remit only that proportion (40%) of the dividends which represented the former Mitsui shares, and obliged Otis to seek renewed permission every five years to continue its operations without still further restrictions.190 OTHER AMERICAN MULTINATIONALS Local regulation largely determined the experiences of many other American multinationals in Japan during the decade of the 1940s. Consider, for example, the experience of International Telephone & Telegraph (ITT). A major investor in NEC and Sumitomo Electric through prewar acquisitions, ITT learned early in the Occupation that its Japanese assets had been expropriated during hostilities. Soon after the start of the Occupation, however, ITT, like IBM and Otis, sought to resume its direct-investment position. As a first step, the firm's chief representative in Japan in May 1948 therefore filed for restitution of properties with SCAP. In addition, ITT proposed to the authorities that the company establish with its prewar Japanese partners two new firms to operate in the postwar market. ITT would transfer to these new companieswhich it suggested be named International Nippon Electric Company (INEC) and International Sumitomo Electric Industries (ISEI), and which would take over many of the assets of NEC and Sumitom0 Electric-technology and capital to produce telecommunica-

Thi

d

l d df

The Closed Door, 1940-1950

tions equipment at INEC and cables and other electrical equipment at ISEI. In exchange, ITT would gain substantial ownership in the new ventures. Complex, lengthy investigations and negotiations followed, which included ITT, NEC, Sumitorno Electric, SCAP, and the Japanese government. In the end, however, SCAP turned down ITT's proposal to establish ISEI and INEC, and it was not until late 1951 that the government officially restored even the American company's interests in its two prewar affiliates.191 Nor does ITT represent an isolated exception. NCR also sought to resume its prewar investment position in Japan after the start of the Occupation, but, due in large part to local restrictions, did not manage to regain its 70-percent share in NCR Japan until 1951. B. F. Goodrich, another prewar American manufacturing investor, similarly had to wait until the closing days of the Occupation to resume its equity position in Yokohama Rubber due to local regulations, as did Libbey Owens Glass to regain its equity stake in Nippon Sheet Glass.192 Restrictions also significantly influenced, of course, the FDI strategies of virtually all American firms that had not invested in Japan before World War 11. Like other U.S. companies, these firms were barred by SCAP from traveling to Japan to investigate the local economy during the early years of the Occupation. Moreover, even after the partial relaxation of capital controls in 1949, newcomers to the Japanese market still had to meet numerous public standards set by the Japanese government as well as SCAP before they could hope to gain official permission to directly invest. Facing restrictions such as theseand, quite naturally, still uncertain about the prospects for the postwar Japanese economy so soon after the terrible wartime destructionit is hardly surprising that few American newcomers invested in Japan before the close of the decade.193 Yet restrictions fail to account for the experiences of all American multinationals that contemplated direct investment in the early postwar Japanese economy. Similar to the prewar period, American petroleum companies in particular enjoyed privileged access to the market thanks largely to their unusually strong bargaining position. (See Table 18.) In part by using leverage derived from their access to overseas oil supplies, Standard-Vacuum, Caltex, Tidewater Associated

Thi

d

l d df

The Closed Door, 1940-1950

TABLE 18 Foreign Direct Investments through Acquisition of Stock and Proprietary Interest Validated by the Japanese . Government through 1952, by Industry (in 1,000s of current dollars) Industry

No. of Cases

No. of Shares

Amount Paid

As % of Total

Petroleum and Coal Products Chemical and Related Products Iron, Steel, Non-Ferrous and Metal Products Foreign Trade and Wholesale Electrical Machinery, Equipment and Supplies Rubber and Leather Products Machinery (excluding Electrical) Spinning and Weaving Other TOTAL Source: Adapted from Bank of Japan, Foreign Capital Research Society, Statistical Data and List of Principal Cases of Foreign Capital Investment in Japan as of the End of 1932, p. 21. Notes: All dollar figures converted from yen at 360 yen per dollar. FDI is here generally defined as ownership of 10%or more of the total equity of an enterprise.

and other American oil firms managed to acquire substantial positions in the postwar Japanese petroleum industry. Most joint ventured with Japanese petroleum interests, and all offered guaranteed supplies of overseas crude in exchange for direct stakes in the local economy.194Thanks largely to this strong bargaining power, American petroleum companies accounted for almost as much U.S. direct investment approved by the Japanese government and SCAP during the Occupation as all other industries combined.195 "Once again the oil industry was reestablished in [postwar] Japan as the exceptional

Thi

d

l d df

The Closed Door, 1940-1950

case," the economist Raymond Vernon correctly observed, "as the major industry in which foreign interests were dominant."l96 Nor was the principal reason for this exception a mystery: "Honestly speaking," as one official MOF history noted, "there were few examples of [direct] foreign capital induction which the Japanese side desired, outside those related to petroleum."197 Other prewar American investors encountered similar controls over their local interests in wartime, but did not enter in the late 1940s not because of local restrictions, but rather because they failed to foresee the potential of the Japanese market in this initial postwar period. Ford and General Motors count among such American companies. In wartime, of course, the authorities turned to domestic advantage the local operations of the two U.S. automobile companies. On 22 December 1941-just two weeks after Pearl Harbor-the military ordered the These plants soon expropriation of Ford Japan and GM Ja~an.19~ would be converted to military use. Many of the machines and parts inventory in Ford's assembly plant at Koyasu, for example, were shipped off for use by the Nissan-controlled Manchuria Automobile Company199 The Army then turned over the land at Koyasu to Isuzu, which manufactured tanks and trucks on the site.200Ford's properties at Tsurumi were taken over by Shibaura Electric and other industrial concerns.201 The Osaka Military Arsenal converted GM's Osaka plant, on the other hand, into a repair facility for cars, military trucks, and anti-aircraft guns.202The Army sent GM machinery and spare parts to Toyota and Isuzu. And, later, the Army erected on the site at Osaka an entire military installation.203 After the war, Ford and GM reassessed their positions in the Japanese market, yet both decided not to seek immediate re-entry regardless of their prospects for obtaining requisite official approvals. Although the Japanese government had indicated before the end of the Occupation its intention to oppose either large-scale auto imports or foreign assembly operations in Japan, the agreement had not stipulated-and the U.S. companies did not believe-that it would oppose foreign direct investment in local manufacturing.204 Still, the state of the Japanese economy in general and the motorvehicle industry in particular discouraged both Ford and GM from

Thi

d

l d df

The Closed Door, 1940-1950

undertaking direct investments in the early postwar Japanese economy.205At Ford, management initially was divided, but ultimately decided against immediate re-entry because top officials judged the prospects for the local industry as poor. "I presently cannot foresee any major competition from the Japanese automobile industry anywhere in the world outside Japan," Ford International Vice-president Arthur J. Wieland wrote to Henry Ford I1 and E. R. Breech before the close of the Occupation, "with the exception of China, Manchuria and Korea."206 General Motors proved equally pessimistic about the future of the Japanese industry. At a critical meeting of the company's Overseas Policy Group before the signing of the Peace Treaty, top managers were told that "market potential at present or for the foreseeable future does not justify General Motors consideration of undertaking local manufacture" in Japan.207Ford and GM would watch and wait before again seriously entertaining production in Japan.

CONCLUSIONS Similar to the decade of the 1930s, local restrictions severely limited United States direct investment in Japan during the 1940s. In war, of course, the Japanese authorities expropriated and then turned to domestic advantage the assets of many American multinationals. But, even during the Occupation, SCAP and the Japanese government together placed major obstacles in the way of the United States investor. Restrictions alone, however, do not explain the entire story. Some U.S. companies-including, most notably, certain prewar investors such as Ford and General Motors-might well have been permitted to invest towards the close of the Occupation but opted not to do so largely because they failed to foresee the rapid recovery and growth of the postwar Japanese economy. In addition, a small number of American firms did manage to directly invest in Japan before the end of the Occupation. Yet these successes generally were limited to the exceptional prewar re-entrants, and to those firms operating in the pe-

Thi

d

l d df

The Closed Door, 1940-1950

TABLE19 Foreign Direct Investments through Acquisition of Stock and Proprietary Interest Validated by the Japanese Government through 1952, by Country (1,000s of current dollars) No. of Cases

Amount Paid

As O h of Total

United States United Kingdom Canada Netherlands Hong Kong China Okinawa Panama Germany Denmark India

64

$13,888

71

8

2,617

13

3

2,064

10

1

28

-

Total

89

$19,476

100

Nationality

Source: Adapted from Bank of Japan, Foreign Capital Research Society, Statistical Data and List of Principal Cases of Foreign Capital Investment in Japan as of the End of 1% p. 21. Notes: All dollar figures are in thousands, and converted from yen at 360 yen per dollar and rounded to the nearest thousand. FDI is here generally defined as ownership of 10% or more of total capital.

troleum industry-some from the prewar era, others as postwar newcomers-where access to foreign oil could be used effectively as a bargaining chip for entry into an economy virtually without domestic petroleum sources. And, moreover, it is at least as notable that some U.S. firms did gamble on re-entering Japan's ravaged postwar economy as that other firms hesitated to do so while economic prospects remained unclear. These exceptions aside, however, the operation of Japanese restrictions continued to influence critically the record of American investment in 1940s Japan-and attests to an essential continuity between the pre- and postwar periods. Investments from the United States, which accounted for the majority of FDI in early postwar Japan, re-

Thi

d

l d df

The Closed Door, 1940-1950

mained "frozen" in the early part of the decade and sharply curtailed by regulation later in the decade. (See Table 19 for a breakdown of FDI approved by the Japanese government through 1952, by country, number of cases, and value.) In fact, stocks of U.S. direct investment in Japan, far from increasing in value, sharply declined during the era of the Closed Door-from an estimated $37.7 million in 1940, to just $19 million in 1950. Public officials assumed an unusually powerful position in the creation and execution of investment restrictions during this exceptional period. Although Japanese business groups managed to shape the policymaking process in some instances, the Japanese governmentbacked up, in the latter part of the decade, by SCAP-apparently prevailed in the policymaking process. Still, stronger business influence in policy circles would return soon after the nation regained full and formal independence in the early 1950s.

Thi

d

l d df

FOUR

The Screen Door, 1950-1970

In economic terhs, Japan offered a highly attractive market for United States direct investment in the 1950s and 1960s. Exceptionally rapid economic growth created one powerful incentive: Japan's economy, as measured in real GNP terms, for example, grew at rates well exceeding those of most other major market economies during this period, and averaged some 10.8 percent from 1959 through the early 1970s.' This rapid growth soon catapulted Japan into the ranks of the world's most advanced industrialized nations, marked symbolically by the nation's admission into the Organization for Economic Cooperation and Development (OECD) as a full member in 1964. Such gowth, outstripping even that of West Germany, created powerful incentives for U.S. multinationals already poised to invest overseas more aggressively than during any previous period in American history. Postwar Japanese trade policy made foreign direct investment an

Thi

d

l d df

The Screen Door, 1950-1970 especially attractive means for American companies to participate in that market. Japan, of course, pursued a strategy of import-substituting industrialization in this era, which included the erection of substantial tariff and numerous non-tariff barriers covering a wide range of goods and services. Unable to export, many U.S. multinationals which did not wish to license their technology and knowhow to Japanese competitors therefore could contemplate direct investment as an alternative means to sell within Japan's protected economy. Despite these incentives, however, Japanese restrictions created great difficulties for foreign companies seeking to directly invest. Indeed, throughout these two postwar decades the authorities operated an elaborate and virtually comprehensive control system which scrutinized all major foreign investment proposals through an arduous case-by-case procedure. This procedure was designed to discourage, or filter out, most inflows of FDI, but to encourage inflows of foreign technology. That is why Japanese policy towards U.S. and other foreign direct investment during this period, which lasted from roughly 1950 through the end of the 1960s, is in many respects analogous to a "Screen Door." Such investment restrictions decisively shaped the character of American multinational participation in the postwar Japanese market. These investment controls, together with stringent barriers to trade, left most U.S. firms with only one real "option" if they sought to participate in the postwar economy: license technology to Japanese firms. And license they did. In fact, between 1950 and 1970, the Japanese government approved some 7,845 contracts with durations of more than one year for foreign companies to transfer technology to Japanese enterprises, in fields as diverse as chemicals, food, machinery, and steel.2 Not all foreign companies, however, were barred from investing in Japan. Coca-Cola, for example, managed to establish a direct presence largely on the strength of its well-known marketing skills. And Texas Instruments gained permission to directly invest by explr~iting its unique patent position. Still, these and a small number of other "successful" foreign firms first had to gain the backing of powerful

Thi

d

l d df

The Screen Door, 1950-1970

Japanese business interests-a difficult and lengthy process, which generally exacted a heavy price in technology or other costs. Yet companies such as Coca-Cola and Texas Instruments were the rare exceptions which proved the overall rule: Foreign companies without special leverage generally could not gain adequate Japanese business support to establish a direct presence and, as a result, were politely told to stay home.

JAPANESE RESTRICTIONS MOTIVES

Many leading Japanese business and government officials expressed profound doubts about the overall effects of foreign direct investment on their postwar economy. These officials acknowledged that such investment might well promote greater efficiency through increased competition, reduce the cost of capital, raise the level of domestic technology, and bring other benefits as well. At the same time, however, they argued forcefully that FDI carried serious drawbacks which had to be weighed against such benefits. The threat that foreign investors might erode the competitive position of existing Japanese companies was one commonly cited drawback. "By coming to Japan, the Western enterprises can combine their technology and capital with high-quality (but cheaper) labor in Japan," said MITI official Hayashi Shintara, for example, during debates over foreign "thus ~ enhancing their position not only vis-A-vis capital in the 1 9 6 0 ~ their parent firms in the home country, but also relative to Japanese firms that have no access to foreign capital and technology."3 In addition, many argued that FDI could threaten the development of domestically controlled technologies critical for the nation's commercial competitiveness. Multinational corporations often concentrate research and development in the home country of the parent company, Japanese critics asserted, and refuse to share these technologies with overseas competitors. The operation of foreign MNCs in Japan could lead to a dangerous dependence on overseas technology instead of the development of indigenous technical capabilities. "The

Thi

d

l d df

The Screen Door, 1950-1970

chronic and excessive dependence upon borrowed technology destroys the internal capacity to develop new technology," again according to MITI's Hayashi, "and dims the hope for the nation's playing a leading role in global development."4 The drawbacks cited did not stop there. Representatives to the Japanese council charged with evaluating individual foreign investment proposals, for example, identified a considerable number of additional supposed "demerits" which might well offset the "merits" of unregulated inward direct investment. For example, the operation of U.S. and other foreign MNCs in the Japanese market, these critics claimed, could lead to dangerous foreign influence over local money markets. Others worried about the possible disruption of relations among Japanese companies within various industries and among members of industrial groups. Still others cautioned that unrestricted FDI could interfere with domestic business-government relations.5 Against these claims, economists and others argued that the free international flow of capital would bring overall benefit to the economy, and would not threaten national sovereignty. Prominent Japanese economists such as Komiya Ryiitarb, for instance, openly chafed about the "gap" between the prescriptions of modern mainstream economists and the policy prescriptions of Japanese business and government leaders.6 American and other foreign groups also criticized assertions that FDI would threaten Japanese interests. "There seems to be fear in some quarters in Japan," the U.S.-based Committee for Economic Development noted in 1963, to cite just one of numerous examples, "that the increase of foreign direct investment would compromise the independence of Japan. This fear," the Committee tried to assure Japanese leaders, "is groundless."7 Such arguments, however, failed to assuage the fears of many of those influential in Japanese policy circles. Major business organizations such as Keidanren, which represented many of the nation's largest corporations, for example, generally opposed the free inflow of direct investment throughout most of the 1950s and 1960s. And many officials at the country's leading economic ministries such as MITI similarly favored strong regulation.8

Thi

d

l d df

The Screen Door, 1950-1970 METHODS Japan's postwar international agreements suggested that the authorities would permit relatively unrestricted inflows of FDI from the United States and, gradually, from many other nations. Specific bilateral economic accords with the Allied Powers were to be based on principles set forth in the 1952 Treaty of Peace. In that treaty, Japan vowed to provide national and most-favored-nation treatment to Allied foreign investors unconditionally for a period of four years and to the extent that individual Allied nations provided Japanese companies such treatment in their own economies thereafter.9 Japan then entered into a number of Friendship, Commerce, and Navigation (FCN) treaties which explicitly guaranteed foreign investors numerous rights in the local economy. Japan's 1953 FCN treaty with the United States, its first such treaty with any Western power after World War 11 guaranteed American investors national and mostfavored-nation treatment in the Japanese market.10 (See Appendix C.) Although Japan, under the Protocol to this treaty, could restrict FDI either to prevent foreign-exchange reserves from dropping to "very low" levels, or to increase reserves from such levels, the accord bound Japan not to impose exchange restrictions ''in a manner unnecessarily detrimental or arbitrarily discriminatory" to American investors or to their "competitive positiony'in Japan." In the 1 9 6 0Japan ~ ~ took on added international commitments which suggested that the nation would permit inward direct investment with still less (and declining) regulation. Perhaps most important, in 1964, when Japan became a full member of the OECD, the Japanese government pledged to observe the Code of Liberalization of Capital Movements of that organization.Under the Capital Code, Japan promised to ccprogressivelyabblish . . . restrictions on movements of capital to the extent necessary for effective economic cooperation'' with other member countries.l2 The Code did allow for reservations to this general principle, but only when a specificforeign direct investment would create an "exceptionally detrimental effect" on the economy of a member country.13 In addition, Japan agreed, also in 1964, to observe Article 8 of the International Monetary Fund (IMF) Charter, which required signatories to allow free transactions in foreign exchange.14

Thi

d

l d df

The Screen Door, 1950-1970 Throughout the Screen Door era, however, Japan imposed stringent and comprehensive controls over foreign multinationals. In legal terms, there were two principal measures which supported this postwar control system. Both came into effect in 1950, and both functioned throughout the succeeding two decades. The central legal measure that controlled foreign direct investment in postwar Japan was the Foreign Investment Law (FIL) of 1950.15 (See Appendix D.) Created while Japan was still "under" the Occupation-but strongly influenced by Japanese bureaucrats charged with its initial drafting and much of the later revision-the FIL would have an enormous effect on the behavior of foreign corporations intent on investing in Japan during these years.16 "Most Japanese are not aware of the significance of this law," said a former high-ranking MITI official intimately involved with foreign investment issues in the 1960s who later became the Governor of an important Kyushu prefecture. "But ask [NEC Chairman] Kobayashi or [Sony Chairman] Morita-they know."'' Knowledgeable foreigners are not inclined to disagree. Richard Rabinowitz, an American lawyer who represented many large U.S. corporations in Japan beginning in the 1950s, for example, remarked with only mild hyperbole that the FIL was the "linchpinyyof postwar Japanese economic development.18 The FIL set forth the aims and purposes of foreign investment regulation in broad and rather vague terms. According to Article 1, the Law sought to create a "sound basis for foreign investment in Japan, by limiting the induction of foreign investment to that which will contribute to the self-support and sound development of the Japanese economy and to the improvement of the international balance of payments."lg The FIL also set forth the "principle" of foreign investment, which emphasized the supposed liberal and temporary nature of the measure. "Foreign investment shall be permitted to be as free as possible," Article 11 stated, and "the system of validation and filing of reports pursuant to the provisions of this Law shall be relaxed and eliminated gradually as the necessity for such measures decreases.'QO The FIL covered three major types of international transacti~ns.~l (1) Most important, it regulated the acquisition by foreign investors

Thi

d

l d df

The Screen Door, 1950-1970

of corporate stocks and proprietary interests in Japan.22(2) Unusual in international terms, the FIL required validation of all technological assistance contracts or related payments covering a period in excess of one year.23 (3) The FIL subjected to government control all loans between foreign investors and Japanese persons where foreign exchange was a consideration, together with the acquisition of corporate debentures.24 The FIL also set forth general criteria for evaluating individual investment applications, and offered foreign investors protected under the Law a way around far-ranging foreign exchange controls. To qualify for government approval, a proposed transaction had to satisfy at least one of three standards: (I) "directly or indirectly contribut[e] to the improvement of the international balance of payments"; (2) "directly or indirectly contribut[e] to the development of essential industries or public enterprises"; or (3) be "necessary for the revival or continuation of existing technological assistance contracts conIf obtained, FIL cerning essential industries or public enterpri~es."2~ validation might provide government guarantees of overseas remittances for profits and principal, unfettered rights to import technology to local subsidiaries and to remit royalties arising from the use in Japan of such technology, and official commitments to protect the investment against expropriation and related risks. Such guarantees, however, were left entirely to the discretion of the authorities, who might-and often did-attach conditions to a validation which would limit or exclude some of these guarantees. The official Foreign Investment Deliberation Council (FIDC), successor to the Foreign Investment Commission, determined whether or not to validate individual investment proposals under the Law.26 Formally, a foreign applicant submitted an investment proposal to the Bank of Japan. The BOJ would then route the proposal to the FIDC, MOF, and various other public bodies. The FIDC, composed of representatives from the leading economic ministries, would then render a final decision with the advice of these other public bodies.27 Finally, the Bank of Japan would notify the foreign applicant of the FIDC's decision. The formal power of the FIDC, however, obscured the central role

Thi

d

l d df

The Screen Door, 1950-1970

of Japanese business in the decision-making process. In the case of foreign proposals to invest in manufacturing, for example, FIDC deliberations were supervised by its Working Committee, an informal group composed of representativesfrom each of the major economic ministries and the Bank of Japan.28 The conclusions of the Working Committee, in turn, largely reflected the position of the representative from the ministry with primary jurisdiction over the general field into which the foreigner wished to invest.29 Before that representative offered his view on an impending application, however, he first consulted with members of the genkyoku ("originating sectionyy)at his ministry directly responsible for protecting and promoting the interests of Japanese companies in the specific industry concerned. Yet the position of the genkyoku was in turn strongly influenced by Japanese companies in the industry targeted by the foreign investor. Those Japanese companies, generally organized through their industry or trade association, solemnly debated FDI proposals well before the government bureaucracy rendered its final decision. Once concerned Japanese companies had made their determination, the ensuing deliberations in the Working Committee and in the FIDC in general were largely pro forma. "It was very common," as the former chief representative of DuPont Japan expressed it, "to have your competitors debating the proposition of your coming in as a direct investor."30 In short, business constituted the critical link in the FIL approval process-even though its participation in this process was set forth in no law or regulation. (See Figure 9.) Bureaucratic dependence largely explained the powers of Japanese business in the investment-deliberation process. This dependence stemmed in part from the bureaucracy's need to obtain extensive and upso-date information and expert advice on specific industrial issues pertaining to the foreign investment application from concerned local firms. Members of the FIDC, for their part, generally had to rely on the judgment of the key genkyoku of the concerned ministry. Indeed, as one former investment official with direct involvement in this process explained: 'What did [the members of the Commission] know [about the implications of the FDI proposal]? What did I know about it? The opinion of the genkyoku prevails-they know

Thi

d

l d df

The Screen Door, 1950-1970

FIGURE 9 The Postwar Japanese Screening System for Inward Direct Investment Applications under the Foreign Investment Law: An Example of a Major Manufacturing Proposal

Forelgn Applicant

Forelgn Investment Deliberatbn Council

i

*

MlTl MOF

I I

Other Publk Offices

I /

Japanese Industry

+

Foreign Investment Dellberatlon Council

I

Bank of Japan

I

Foreign Applicant

I

best."Jl Yet the g e n b k u was in turn dependent on the industry for data and much other information critical for evaluating the FDI proposal. In addition, longer-term bureaucratic dependencies arose from practices such as a d u d a n ' , in which business often provided ranking government bureaucrats with comfortable advisory positions in their firms following recommended retirement from public service by the age of 55.'* Gaining FDI approval through this process proved no easy task, and Japanese business and government leaders generally tried to persuade foreign companies to modify or cancel their proposed invest-

Thi

d

l d df

The Screen Door, 1950-1970

ment plans even before such companies formally had submitted their investment applications to the government. Technology licensing, foreign companies were told, offered guaranteed returns with minimal effort and almost certain approval under the FIL. A foreign investor not so persuaded often was advised by public and private sector officials alike to seek a minority or, at most, an equal-partnership interest in a local company with Japanese capital. Foreigners not fortunate enough to gain official approvals under the FIL were subject to provisions of the Foreign Exchange and Foreign Trade Control Law passed in December 1949 (or 1949 FECL), and enacted the following year.33 The purpose of the measure, according to its Article One, was to:

. . .provide for the control of foreign exchange, foreign trade and other foreign transactions in order to assure, for the sake of rehabilitation and expansion of the national economy, the proper development of foreign trade, safeguarding of the balance of international payments, stability of the currency and the optimal use of foreign currency f ~ n d s . 3 ~ Even more so than its predecessors, the 1949 FECL included within its purview an extremely broad range of foreign exchange and related transactions. The entire law was based on the so-called "negative principle," which implicitly prohibited all specified transactions without explicit government validation.35 The law stipulated, in vague language characteristic of much Japanese economic legislation, that the principal criterion for deciding on a foreign-exchange application would be whether or not the proposal would benefit the Japanese economy. The 1949 FECL held profound implications for the foreign investor, because virtually every international economic transaction relating to foreign investment that was not explicitly exempted through firm-specific guarantees granted under the FIL fell under its jurisdiction and therefore required official approval. The measure stipulated, for example: "Unless authorized under this Law or ordinances issued thereunder, no person in Japan shall (1) Make any payment to a foreign country [or] (2) Make any payment to a nonresident."36 Control

Thi

d

l d df

The Screen Door, 1950-1970

over securities was equally rigid: "No person may sell, purchase, donate, exchange, lend, borrow, deposit, pledge, or transfer in any way securities located in Japan or transfer any rights to such securities without being duly authorized or obtaining a license under provisions of Ministry of Finance ordinance."37 Nonresidents without explicit permission were prohibited from either acquiring or disposing of real estate in Japan, and there were restrictions as well on import and export activities.38 The Law also enabled the authorities to regulate capital and other inflows to and outflows from foreign branches in Japan, a category of business enterprise not covered by the FIL.39 In all, the 1949 FECL institutionalized the most rigid and far-ranging control over Japan's international economic relations in that nation's modern history. The importance of this exchange legislation became particularly apparent during the short-lived operation of the postwar "yen-base system." Obliged to provide national treatment to American investors no later than 1956 under the terms of the bilateral FCN Treaty concluded three years earlier, the Japanese government announced that, starting in October 1956, U.S. investors could establish so-called yen-base companies in Japan without obtaining approvals under the stringent FIL control legislation.40 Companies set up under this "yenbase system" posed major risks for the American investor, however, because the government-through foreign-exchange provisions of the 1949 FECL-could block the transfer of capital, technology, and other assets from overseas parent to local subsidiary, as well as the remittance of all profits, interest, and principal from subsidiary to parent. These discretionary government controls rendered "yen-base companies," at least in the view of one prominent American lawyer then based in Tokyo, "high risk" ventures which were inherently "very speculative."41 Yet the authorities plugged even this small opening in the postwar control system in June 1963, following Japan's commitment to deregulate foreign exchange controls by 1964 in order to gain entry as a full member of the IMF. Without exchange controls, officials realized, the "yen-base company" would provide a relatively unemcumbered vehicle for foreign direct investment, and so the system was abolished less than seven years after its creation.42

Thi

d

l d df

The Screen Door, 1950-1970

In short, foreign investors confronted a sweeping and virtually comprehensive set of restrictions in postwar Japan. Only the Foreign Investment Law could provide extended overseas remittance and other rights through official guarantees, but FIL approval-largely determined by the interests of Japanese industry competitors-in general proved exceedingly difficult to obtain. Failing such approval, the prospective foreign investor had to contend with the Foreign Exchange and Foreign Trade Control Law, which required explicit permission on a case-by-case basis for almost every international economic transaction related to foreign investment. In the face of these controls, it is therefore little wonder that technology licensing became the principal method for foreign participation in an otherwise tightly regulated market.

AMERICAN M U L T I N A T I O N A L STRATEGIES COCA-COLA

The Coca-Cola Company, incorporated in 1892 following the creation of the soft drink 6 years earlier, expanded rapidly in the American market. Indeed, so quickly did the firm develop that by 1895 thenpresident Asa Candler could boast that "Coca-Cola is now sold and drunk in every state and territory in the United States."43 Annual sales of Coke already had reached the million-gallon mark by 1904, and would continue to grow across the country in succeeding years.44The first large-scale Coke bottling plant opened in 1899, followed by the rapid proliferation of other such plants across the country in coming decades.45 Coke's development of distinctive business methods encouraged this rapid domestic expansion. Perhaps most significantly, the company pioneered marketing techniques which both expanded the overall market for soft drinks and effectively differentiated Coke from competing soft-drink brands.46 Shortly after its incorporation, the company also instituted the "route sales system" to sell Coke directly to retail outlets.47 This system economized on distribution costs by eliminating wholesalers and other middlemen who traditionally

Thi

d

l d df

The Screen Door, 1950-1970

stood between producers and sellers of similar products. In addition, the firm then licensed two Georgia businessmen to market Coke in bottles, rather than through the traditional soda fountains, across most of the United States. And finally, these two businessmen, eager to expand into new domestic markets yet unable to raise adequate capital themselves, granted bottling and distribution rights for exclusive territories to independent entrepreneurs. This franchise system of locally owned and operated bottling plants, supplied from Cokecontrolled syrup factories, soon spread throughout the United States.48 Like its domestic behavior, aggressive expansion characterized Coke's overseas operations as well. The soft-drink maker first directly invested in foreign markets at the turn of the century, and by 1929 had established 64 Coke bottling plants in 28 countries.49"The CocaCola company," one observer therefore noted, "could count itself, along with Ford Motor Company and the makers of Singer Sewing Machines, among the very first American firms doing a multinational business."50 Coke applied itself with still greater vigor to increase its business overseas from 1930, when the firm established the Coca-Cola Export Corporation subsidiary to sell and promote the soft drink in all countries except the United States, Canada, and Cuba.51 So successful were these efforts that, on the eve of World War 11, Coke had established bottling operations in Europe, Asia, and South America in addition to North America; Coke by then could be purchased in some 70 countries.52 Also similar to its activities in the United States, Coca-Cola practiced innovative business methods as it developed abroad. As in the American market, Coca-Cola extended its franchise system overseas by licensing exclusive territories to local independent bottlers, and supplied these bottlers from Coke-owned syrup factories in the region. Also similar to U.S. practice, the firm transferred overseas the route sales system, insisting that bottlers bypass middlemen and sell directly to local retailers. In addition, the company learned to economize on overseas transportation costs by shipping syrup in concentrate form (and, still later, by shipping only certain ingredients in the concentrate) to its foreign syrup factories. These factories would then

Thi

d

l d df

The Screen Door, 1950-1970

produce Coke syrup by adding sugar and water (and additional ingredients when only certain of the concentrate elements were supplied by Coke) from local sources.53 Bottlers then added carbon dioxide and more water to the syrup to produce Coca-Cola. Finally, the company effectively honed its overseas marketing image so that Coke came to symbolize, in the words of Time magazine, the "sublimated essence of all America stands for."54 World War 11 provided Coke with new and unusual opportunities to develop its overseas business. 'We will see to it that every man in uniform," declared then-President Woodruff in late 1941 in a manner typifying his aggressive strategy both at home and abroad, "gets a bottle of Coca-Cola for five cents wherever he is and whatever it costs."55 Yet Woodruff could not have achieved his aims without the direct support of the American military: To boost morale, the Army saw to it that Coke established bottling operations near war theaters, and granted company personnel special status as "Technical Observers," or TO'S, to oversee the installation of these plants. With such official blessing, these TO'S during the war set up some 63 full-scale bottling plants in Europe, North Africa, and parts of Asia, and operated in the Pacific mobile bottling units which could be towed by jeep to follow the rapidly shifting location of hostilities in that region.56 "The war years," the business historian Mira Wilkins therefore concluded, "produced a tremendous expansion of Coca-Cola's foreign business."57 The American soft-drink maker developed overseas markets still more aggressively after World War 11. To be sure, Coke did encounter opposition to its entry in some foreign markets after the war. French winegrowers, for example, tried to block further expansion of the soft drink in their home market in the early postwar period. That effort, however, proved unsuccessful, and Coke's operations in France-first begun prior to the war and already producing 840,000 bottles of Coke monthly by 1950-were allowed to develop with relative freedom after the war as well.58 Despite occasional difficulties such as these, however, following the end of hostilities Coca-Cola managed to establish (or re-establish) a presence in a vast number of overseas markets. By 1950, for example, Coke annually brought in

Thi

d

l d df

The Screen Door, 1950-1970 some $150 million in overseas retail sales, and the soft drink was now available from Brazil to Italy and Haiti to the Philippines; in Germany, signs proclaimed "Coca-Cola Ist Wieder Da!" ("Coca-Cola is Back!").59 The company is "making a determined effort to develop permanent civilian markets all over the world," reported Fortune magazine in 1955, and, by the following year, Coke was being bottled in no less than 594 overseas plants, including such geographically and economically disparate locales as Belgium, Uruguay, Canada, and Indonesia.60 Compared to its experiences in most other foreign markets, however, in Japan Coke experienced unusual difficulties when it sought to establish local operations. Coca-Cola initially came to Japan with the American troops.61 At the invitation and under the auspices of the U.S. Army, Technical Observers from the Coca-Cola Export Corporation arrived in Japan just weeks after MacArthur's September 1945 landing at Atsugi airfield and began to bottle the soft drink at a requisitioned Yokohama brewery plant, owned by the Kirin beer interests, that October.62 Coke personnel then set up in Yokohama the Japan Division, a branch office of the Coca-Cola Export Corporation. The Division supervised the importation of Coke ingredients as well as bottling machinery and other equipment, and coordinated the installation of bottling plants in 6 strategic locations in the country, together with local carbon dioxide and syrup-plant facilities.63 "Operation Coca-Cola" supplied American Occupation forces and their dependents stationed throughout Japan. With Military Payment Certificates similar to those issued in occupied Germany and Austria, Allied forces could purchase Coke at post exchanges and commissaries, Army service and officers clubs, and even ''on-limits" night clubs. Allied soldiers also could drink Coke while on maneuvers in Japan, and for the children of Occupation personnel there were "Coke Clubs." The Japan-based operation also supplied the soft drink to Allied forces in Korea after the outbreak of hostilities there in 1950.64 The Japanese authorities, however, strictly forbade their own citizens from purchasing Coca-Cola during the Occupation and for many years thereafter. From the very entry of Coke after the war, the gov-

Thi

d

l d df

The Screen Door, 1950-1970

ernment enforced measures which made the acquisition of even one bottle of Coca-Cola in Japan by Japanese nationals a legal offense.65 O n just a single day during the entire 7-year Occupation period-12 October 1949-the Ministry of Finance made a special exception and allowed those Japanese attending an exhibition baseball game between a Japanese and a visiting American team to buy CocaCola.66 That Coke was a foreign product alien to Japanese tastes did not discourage local consumer interest: "The Japanese," recalled former Coke Japan President Iwamura Masaomi, "swarmed around the Coke vending wagons in the ballpark."67 Nor did these controls on Coke disappear after the end of the Occupation. In July 1956, for example, the police arrested and fined four Japanese employees of the American firm's Japan-based operations for allegedly selling Coke to local soft-drink vendors. The authorities then learned that Coke had permitted each of these employees to buy one case of the soft drink per month, and consequently levied fines and other penalties on the U.S. firm for violating Japanese regulations on contraband goods.68 Coke's inability to enter the civilian Japanese market was not, however, for lack of effort. Indeed, at least as early as 1949, the Japan Division made direct appeals to the Occupation authorities for permission to import Coke concentrate, and, after Japan had regained independence, the company lobbied Japanese business and government organizations on numerous occasions.69 In addition, from the late 1940s Coke representatives tried to interest local entrepreneurs in establishing .exclusive territorial franchises to bottle and distribute CocaC0la.70 The American firm finally enlisted the support of Takanashi Nisaburb, the influential and well-connected president of the sizable Koami food wholesaling concern, who proved eager to break into the domestic soft-drink industry.71 In November 1952, Coke promised Takanashi an exclusive franchise for the Tokyo metropolitan area and the U.S. military market in Japan (still supplied by the local Coke branch) if Takanashi could persuade the government-now completely free from Allied Occupation authority-to issue the necessary permits.72 The commitment from Coke now assured, Takanashi formally applied to MITI in June 1953 for permission to import $300,000 worth of Coke ~oncentrate.~~

Thi

d

l d df

The Screen Door, 1950-1970

Officially, it was the bureaucracy, largely on grounds of inadequate foreign exchange, that denied Coke access to the civilian Japanese market. In the early postwar years, the American firm had to import syrup concentrate from Panama, Guam, and other overseas locations to produce the soft drink in Japan, for only water, sugar, and carbon dioxide could be procured locally. Later, more syrup ingredients became available domestically, but still the U.S. company had to import its secret '7X" and certain other ingredients into Japan. To import, however, required foreign exchange. Yet, in the years just after the war, SCAP turned down Coke's foreign-exchange requests to import syrup ingredients for civilian sales, for the Occupation authorities judged that reserves were still too limited just after the war, and ought to be spent instead to meet pressing demands for imports of basic foodstuffs and other necessities. The Occupation authorities, however, envisioned these controls as strictly temporary measures to be rescinded once the economy could provide its citizens with such necessities. Yet, even after the Occupation, by which time the Japanese economy-and its foreign-exchange reserves-had significantly improved, the authorities continued to turn down all requests for funds to import Coke concentrate. MITI, acting at the behest of the Ministry of Agriculture's (MOA) Food Agency, the unit within the MOA directly responsible for the welfare of the domestic beverage industry, continued to cite inadequate foreignexchange reserves as the primary reason for continuing to deny Coke the necessary permits.74 The authorities therefore used the foreignexchange mechanism effectively to seal off the civilian market to the American soft-drink maker. Although it was the government that formally blocked Coke's entry, Japanese business interests critically influenced bureaucratic restrictions at least as early as the close of the Occupation period. Indeed, as foreign-exchange reserves expanded in the early 1950s, it became clear that the Japanese beverage industry's fear of competition from the American drink largely drove government policy. The most vocal and visible members of the private opposition were the thousands of small-scale producers, wholesalers, and retailers of said2 ("cider," a carbonated fruit drink), ramune (lemonade) and

Thi

d

l d df

The Screen Door, 1950-1970

other fruit-juice beverages then popular in Japan. These local opponents, organized into the Japan Fruit Juice Association and the Japan Fruit Juice Agricultural Cooperatives Federation, vigorously lobbied the Diet and the bureaucracy to keep Coke The Japanese firms Kirin, Asahi, and Sapporo, however, held the real power within the opposition. These beer brewers, each of which produced a competing line of soft drinks, greatly feared the competitive threat that Coke's entry posed to their own soft-drink businesses. Unable to create a suitable substitute for Coke despite numerous attempts, these brewers pooled their considerable economic and political resources in the National Soft Drink Industrial Society to support the antiCoke forces. Eager to avoid a direct, public confrontation with Coke-and certain that the appeals of the small-scale fruit juice industry would gain special sympathy in the Diet, where the interests of small business often attracted strong support-the 'Big 3" of the domestic beer industry acted as the "hidden financiers" who quietly bankrolled the anti-Coke campaigns of the fruit-juice makers.76 Takanashi's 1953 request to the government for foreign exchange provoked a firestorm of protest from these domestic beverage makers and other interested local firms. Industry representativesintensely lobbied the MOA, MITI and other government agencies to reject this request, and sensational articles began to appear in the press describing the alleged dire threat that the entry of Coca-Cola would pose to local industry. Finally, on 2 July 1953, hearings were held on the Takanashi application in the Diet's Agriculture and Fisheries Committee where, according to Coca-Cola Japan's official history, "one member after another expressed their opposition to the proposal."77 Based on the Diet's negative recommendation, the MOA refused to grant Takanashi's request. In addition to threatening limited foreign-exchange reserves, Coke's potential entry would seriously endanger the domestic fruit-juice industry, including the industry's particularly vulnerable small-scale beverage enterprises, the MOA asserted, so Takanashi's request would necessitate "further study"78 Prohibited from entering the civilian soft-drink market, Coke's business in Japan actually declined in the early and mid-1950s. The departure of American soldiers after the conclusion of the Peace

Thi

d

l d df

The Screen Door, 1950-1970

Treaty, together with the end of the Korean War, caused this drop in demand-and forced Coke to shut down one bottling plant after another. So rapidly did business decline, in fact, that Coke was forced to consolidate all its local operations into just one plant-in Tsurumi, Yokohama- by the middle of the decade. The near collapse of the Japanese business obliged the Coke branch to lay off workers every year from 1952 through 1956, by which time the operation employed just 6 people.79 New developments, however, placed greater pressures on the authorities to modify their controls over Coke's Japanese operations. For one thing, Japan's restrictive policies towards Coca-Cola placed local officials in the highly uncomfortable position of having to had made Japan a virtual padefend policies which, by the mid-1950~~ riah among free-market economies: Coke by then had become available in over 100 countries, and, outside of Japan, few major countries other than China, the Soviet Union, and the nations of Eastern Europe still barred Coke's entry.80At the same time, Coke representatives "bombarded" public and private Japanese organizations with statistics showing that the entry of Coca-Cola into overseas markets generally expanded the scale of the entire soft-drink industry in those markets, and that such entry encouraged as well the growth of local glass, lumber, paper, chemical, and other related industries.81 Most important, however, Japanese entrepreneur Takanashi began to exert, at least in his own estimation and that of a top Coke Japan representative, "tremendous efforts" with ccpoliticalfriends," and to make "repeated presentations" on the potential benefits of local Coca-Cola sales to the MOA, MITI, MOF and other government agencies in order to obtain foreign-exchange allocations to import key Coke ingredients. These efforts culminated in Takanashi's resubmission of a formal request for foreign exchange in the autumn of 1956.82 Finally, under these combined pressures, the authorities slightly modified their restrictive policy. In November 1956, officials announced that the government would grant Takanashi permits to buy up to $40,000 in foreign exchange during the following year to import Coke concentrate and sell the soft drink in the civilian market.83 After years of effort, and with the assistance of its influential

Thi

d

l d df

The Screen Door, 1950-1970

Japanese champion, Coca-Cola at last had achieved its first real "success" in Japan. . Coke and its local ally moved quickly in response to this change in public regulation. Takanashi founded Tokyo Soft Drink Company (now Tokyo Coca-Cola Bottling Company) on 10 November 1956-just days after the government announcement-and purchased from Coke's Japan Division the limited bottling machinery and other equipment still used by the branch operation.84Coca-Cola and Takanashi then concluded a bottler's agreement the following March, which granted the new Japanese company exclusive rights to bottle and distribute Coke in the Tokyo metropolitan area. The first "civilian-market Coke" was delivered to the Tokyo American Club in May 1957.85Shortly thereafter, on 25 June 1957, the American parent replaced its Japan Division branch office with a wholly owned yen-base subsidiary, Japan Soft Drink Industries, (now Coca-Cola [Japan] Company).86 This new subsidiary coordinated efforts to expand the scale of the firm's Japanese business, and in 1959 began local manufacture of Coke concentrate to minimize foreign-exchange requirements.87 Coca-Cola capitalized the new subsidiary with yen proceeds from the sale of its last remaining bottling plant to Takanashi-yen which were "blocked" because the government refused to allow Coke to repatriate locally denominated funds to the United States.88 This first "liberalizationyyof the soft-drink industry was, however, limited in the extreme. First, the modest foreign-exchange allocation for imported concentrate strictly limited the amount of Coke that Takanashi could produce in Japan. Second, the MOA decreed that the new Tokyo bottler could sell Coca-Cola only in a small number of "designated outlets" in the Tokyo area-a total, at the outset, of just 186-which, in practice, meant embassies, legations, hotels, airports, and other locations principally frequented by non-Japanese. Third, the government required retail dealers to sign official statements pledging that they would charge consumers no less than 35 yen per bottle of Coke-a price well above that of competing domestic fruitjuice beverages such as ramune, which sold at just 20 yen per bottle.89 Fourth, the agriculture ministry levied a stiff "luxury tax" of 156 yen

Thi

d

l d df

The Screen Door, 1950-1970

per 24-bottle case which had to be included in the wholesale price. And finally, the government banned all Coca-Cola advertising in the Japanese media or in any outdoor locations anywhere in the country. Although these restrictions gradually were modified, they continued to severely limit Coke's penetration of the market over a number of years-and resulted in operating losses for Coke's Japanese operation through the end of the decade.90 It required the intervention of still more powerful Japanese business forces, however, before Coke could gain greater access to the local market. The original intervention came from an unexpected quarter. As part of its larger strategy to minimize the foreignexchange requirements of its Japanese operation by creating local sources of supply for equipment, soft-drink ingredients, and other operational needs, after the war Coke had arranged a technicalassistance agreement relating to bottling machinery between George J. Meyer Company, a leading manufacturer of beverage equipment in the United States, and Shin-MitsubishiHeavy Industries (now Mitsubishi Heavy Industries), one of Japan's largest producers of machinery and other capital goods and a member of the powerful Mitsubishi keiretsu industrial group.91 Based on that agreement, Mitsubishi began to manufacture and supply bottling machinery to Coke in Japan. Through this relationship Coke also had gained a major domestic ally, for Mitsubishi now saw that it could benefit substantially from an expansion of Coke in the Japanese market. Mitsubishi began to press Kirin Beer-the single most influential member of the Coke opposition, but a relatively weak member of the Mitsubishi keiretsu-to cooperate with rather than continue to oppose Coke by agreeing to establish a local Coke franchise operation.92 Initially, Kirin objected, but Mitsubishi then threatened to bottle and distribute Coke in Japan itself if Kirin would not change its position.93 Kirin contacted Coke. Intense negotiations between the American and Japanese beverage companies began in September 1959 but soon reached an impasse. Kirin tried to drive a hard bargain. First, the Japanese firm wanted Coke to amend clauses in its standard bottler's agreement which required franchisees to follow the direct "route sales" delivery

Thi

d

l d df

The Screen Door, 1950-1970 method and to charge retailers on a cash-on-delivery basis. Business in Japan simply is not done that way, Kirin explained to Coke: Wholesalers act as middlemen in distributing soft drinks to retailers, and provide these retailers with between 60 days' and 6 months' credit. Second, and far more important, Kirin asked that Coke grant the Japanese company an exclusive bottler's license to cover the entire territory of Japan. One franchise for the whole nation, chief Coke negotiator and Coca-Cola (Japan) President Frank Moss recalls having been told, was simply "the way soft drinks [are] manufactured and sold in Japan."94 Coke, however, refused to alter its standard distribution and payment methods and initially offered to license Kirin only for the Osaka area, which had a population of some 4 million people. Kirin then indicated it would not insist on its first demand, but continued to press on the territorial issue. Having apparently gotten wind of Coke's conversations with Kirin, President Yamamoto of the rival Asahi beer interests approached Coke negotiators that same (1959) autumn to propose that Coke ally . ~ ~Asahi President assured Coke's repwith Asahi instead of K i ~ - i nThe resentative that he could "use his political and economic power to remove all restrictions imposed by the Government" if Coke would grant Asahi a franchise for the entire nation.96 Coke, however, stuck to the same position on the territorial issue it had taken in its talks with Kirin, and therefore said it would consider offering Asahi only a portion of the Japanese market. Asahi, which at that time produced the single most popular soft drink in Japan, Mitsuya Cider, and which fashioned itself the country's leading soft-drink company, quickly lost interest in the discussions.97 Just as the Coke-Asahi talks were breaking down, Mitsubishi directly intervened in the Coke-Kirin negotiations and managed to break the deadlock. Indeed, once the huge industrial company stepped in to take an active role in the discussions, according to Coke's Moss, "Kirin's interest [in resolving the territorial impasse] appeared to become more pronounced."98 This new flexibility quickly led to a compromise. Kirin began to ,reduce the minimal size of the territory it would accept, shifting its position from all of Japan to half the country to the Kansai area to the Kinki district. Kirin

Thi

d

l d df

The Screen Door, 1950-1970

remained insistent on grounds of reputation, however, that the population of its franchise territory exceed that of the previously licensed Tokyo bottler: "Kirin Brewery's attitude on this question of territorial population was adamant in that it had to be larger than our Tokyo Bottler's," Moss later recalled, "because Kirin felt that they were a larger and better-known enterprise to the Japanese public and could not 'lose face' by [accepting] a smaller franchise."99 Finally, Coke agreed to franchise Kirin for three prefectures-an area which encompassed Kobe and Kyoto in addition to Osaka, and whose combined population exceeded that of the Tokyo bottler's by about 1 million people. O n 6 February 1960, 5 months after formal talks had begun, the parties arrived at a final settlement. As a result of that accord, Kinki Soft Drink (now Kinki Coca-Cola Bottling Company) was founded on 9 September 1960, with Kirin holding 60 percent of the equity in the new bottler, Mitsubishi, 30 percent, and a consortium of Kirin's wholesalers, 10 percent.loO To benefit from these arrangements, however, Coke's new Japanese allies had to persuade the government to alter official policy towards the American company. "Top management of Kirin and Mitsubishi clearly understood," as Moss later put it, "that it would be necessary to use their economic and political power to assist our Tokyo Bottler in his efforts to reach a settlement for a lifting of the restrictions.""Jl The two Japanese firms, together with their allies, wasted little time in pressing their case with the government. The application of that pressure produced results in short order. Now that the opposition's erstwhile leading member had shifted its weight to the American firm's side, the government moved quickly to placate Coke's remaining Japanese opponents and modify its own regulations. Acting as mediator, the MOA hammered out two agreements between Coca-Cola and its local partners on the one hand, and the three major opposition groups on the other.102 The first bound the opposition to drop its protests and respect official policy changes to liberalize the foreign cola business in the Japanese market, in exchange for a promise by Coke to "cooperate fully" with "business circles" even after formal public restrictions on their business had been removed. The second obliged Japanese bottlers of Coke to

Thi

d

l d df

The Screen Door, 1950-1970

pay the opposition 50 million yen to help small-scale beverage producers modernize and streamline their manufacturing and distribution facilities.103 These accords were signed by the respective parties in August 1960.104 Once interested private ~ a r t i e shad so fashioned a deal, the government moved quickly to deregulate Coke's business in Japan. The authorities announced on 5 October 1960 that MITI would begin automatically to approve foreign-exchange requests for the importation of cola ingredients, which enabled the American company freely to produce concentrate in Japan for the first time.lo5 The authorities also announced that they would repeal controls on Coke advertising and retail sales outlets.106 These modifications of government policies did not, however, come without conditions. At the same time that these deregulation measures were being announced, for example, the authorities instructed the local Coke bottler not to "unreasonably" lower the price of Coke in a way that might "confuse" the sale of purely Japaneseproduced beverages, to avoid "excessive" advertising, to "cooperate" with domestic beverage producers with regard to sales of Coke, and so forth.107 In addition, the government continued to block remittances from Coke Japan to its American parent until the yen became convertible later in the decade.108 Still, the authorities had removed the most critical official barriers preventing Coke's entry into Japan. Advertising, retail outlets and the importation of key cola ingredients now decontrolled, Coke's Japanese subsidiary moved with dispatch to provide supplies and services to Takanashi's bottling company in Tokyo, and to the new, Kirin-and Mitsubishi-backed bottler in the Kinki region. In December 1960 that new bottler began to produce Coke at one of Kirin's soft-drink manufacturing plants, and to distribute the beverage in Osaka and other cities in its franchise region.109 Coca-Cola soon prospered in Japan, realizing a potential it had already achieved in many other countries throughout the world."O

Thi

d

l d df

The Screen Door;1950-1970 TEXAS INSTRUMENTS

If Coca-Cola owes much of its success to innovations in marketing, Texas Instruments has prospered through innovations in technology. The Texas firm, founded in 1930 and soon called Geophysical Services Incorporated (GSI), began by developing instruments and applying techniques based on seismic reflection to locate oil and gas deposits."1 Those instruments and techniques proved so effective that most of the major American petroleum companies numbered among GSI's customers before World War 11, by which time the firm had become the leading independent contractor of oil and gas exploration in the United States.l12 The Texas company capitalized on wartime developments by designing and building products for the U.S. military. In the field of naval warfare, for example, GSI built on its prewar expertise in precision instruments to develop magnetic detection systems for locating enemy submarines, and later developed similar systems for airborne detection purposes. Military demand continued through the war and led to a significant increase in GSI business.113 Still greater innovation and growth came in the postwar era. Shortly after the invention of the transistor at Bell Labs in 1948, managers at GSI began to explore the possibilities of melding their expertise in precision mechanical devices with emerging electronic technologies. This exploration led to the firm's critical 1951 decision to enter the emerging semiconductor business, and to obtain the following year a license from Western Electric to manufacture transist o r ~ . "The ~ company, now called Texas Instruments (TI), soon made two major breakthroughs in the electronics field. First, TI developed in 1954 a commercially viable method of producing transistors made of silicon rather than germanium, which had widespread implications for the use of transistors in electronic equipment heretofore operated with vacuum tubes.115 And, second, TI'S Jack Kilby invented in 1958 a method of combining transistor and other discrete electrical components onto a single, or integrated, circuit8(IC).This path-breaking invention not only meant that electronic circuits could be produced in miniature and at low cost, but that, in Kilby's words, "we had extended the transistor's capability as a fundamental electronics tool.""6

Thi

d

l d df

The Screen Door, 1950-1970

These and related innovations enabled TI to expand rapidly in the American electronics industry during the 1950s. In 1954, for example, TI concluded an agreement with an engineering firm to manufacture the first commercial all-transistor radio, the pocket Regency Radio, with transistors and transformers supplied by the Texas company.l17 Far more important for its later development in the United States and abroad, TI became a major supplier of electrical components to IBM after its December 1957 agreement to supply transistors and diodes under license to the giant computer company.l18 As a consequence of developments such as these, by the late 1950s the Texas firm had become the world's leading producer of semiconductors, and by 1960 TI had entered the ranks of the 200 largest industrial companies in the United States.fl9 TI determined early in the postwar era to capitalize on its innovations internationally by directly investing overseas. The company's decision to move abroad rapidly and aggressively was largely influenced by its visionary Pat Haggerty, a leading TI manager who became its President in 1958. Haggerty foresaw the global nature of the electronics industry, and pushed not only for TI'S rapid expansion abroad through direct investments in the markets it aimed to serve, but specifically advocated wholly owned overseas enterprises, which he believed were far better suited to the demands of TI'S business than joint ventures with foreign companies: In a high technology business like the semiconductor business, time is everything. And to try and go over and convince the partner that they ought to put up $5 million, $50 million, or whatever-it [would take] too long, it made the communications lines too long. It would be a twoheaded monster as far as management was concerned. It would just slow everything down and make us non-competitive.120

In consequence, from the late 1950s TI began to implement a strategy to set up wholly owned electronics plants abroad. The U.S. firm established its first overseas semiconductor manufacturing plant in Bedford, England, in 1957, to supply semiconductors to the British defense industry.12 The Texas company then set up a 100-percentowned factory in Nice, France, in 1960 to produce semiconductors and components for the European Common Market, followed in

Thi

d

l d df

The Screen Door, 1950-1970 1963 by the establishment of additional manufacturing plants under TI'S direct control in Brazil and Canada.122 By 1965, the company operated 15 plants-all wholly owned-in 10 foreign ~ountries.12~ The Texas company encountered little hostility and, indeed, much encouragement from local officials as it directly invested in these and other countries. In France, for example, "the local officials thought it was a great idea for us to put up a plant" in 1960, according to Mark Shepherd, then Vice-president and General Manager of the Semiconductor-Components Division.124 And, when TI decided to establish a semiconductor operation in Singapore later in the decade, the government there did everything it could to facilitate TI'S entry. Indeed, Singapore's government officials moved so quickly to accommodate the American company's requests that TI representatives managed to choose a plant site and gain official approvals to directly invest just one day after arriving in the country to explore investment possibilities. TI began to operate a semiconductor plant in Singapore just months after these company representatives had made that initial visit.125 TI'S experience in Japan, however, set that country apart from every other market the American firm sought to enter. The rapid development of the postwar Japanese market attracted the American firm's attention at least as early as 1956. Haggerty and other leading TI managers therefore traveled to Japan on several occasions, and by the late 1950s there was, according to former TI General Counsel William Roche, "a significant amount of interest among senior officers in the company in considering some kind of a venture that would give TI a physical presence in Japan."lZ6 Although Haggerty strongly favored a wholly owned presence, Japanese government restrictions induced the TI manager at least to discuss the possibility of forming a joint venture with a Japanese firm. Haggerty therefore initiated talks with President Ibuka of Tokyo Tsashin Kbgyb (now Sony)-a firm TI understood to be more outward-looking and therefore potentially easier to deal with than many older, more domestically oriented Japanese companies-to set up an equal-partnership joint venture to manufacture electronic components in Japan. Sony's insistence that only it would market the venture's products, however, apparently derailed the talks by 1959.127

Thi

d

l d df

The Screen Door, 1950-1970

Top managers at TI became even more interested in the prospects of the Japanese market in the early 1960s and therefore redoubled their efforts to invest. Japanese producers were by then becoming important manufacturers of radios and other electrical goods, and TI saw a major opportunity to supply these producers with semiconductors and other electronic equipment. 'We concluded early on that Japan was going to be damned important in electronics," according to Shepherd. 'We had to be there."l28 TI therefore took new steps to strengthen its position in the local market. First, the company filed in 1960 for Japanese patent protection to cover Kilby's breakthrough discoveries in integrated circuits, while at the same time it resisted pressures from Japanese firms to license this technology.'Z Second, the firm stationed in Japan a fulltime representative in 1962 to set up a local sales office and to develop relationships with potential Japanese customers. And third, TI managers frequently traveled to Japan to gain a better feel for the market and confer with local business and government leaders.130 Finally, TI decided in 1963 to apply for permission under the Foreign Investment Law to establish a wholly owned semiconductor manufacturing plant in Japan.131"Resolved," TI'S Board affirmed on 26 November 1963, "that the Board of Directors hereby approves the organization of a wholly owned subsidiary in Japan."132The company then prepared a detailed "Application for Validation of Stock Acquisition," addressed to MITI Minister Fukuda and MOF Minister Tanaka, which included lengthy descriptions of the proposed investment project, together with discussion of the potential benefits to Japan of such a TI investment. TI'S manufacture and supply in Japan of semiconductors and other devices, the company asserted in its application, "will result. . . in lower cost to Japanese industry, [and] a substantial net savings in foreign exchange."l33 Representatives from Dallas then made numerous presentations to MITI, MOF and other government agencies in Tokyo to explain the nature of the investment plan in still greater detail, and to explain how similar investments in other countries had benefited those economies.134 Following these and other preliminary steps, TI officially filed its investment application with the Japanese government in January 1964.135 The Japanese press reacted immediately to the TI proposal, and the

Thi

d

l d df

The Screen Door, 1950-1970 reaction was not encouraging. TI'S entry, according to local newspapers, raised the specter of a "second coming of the black ships"-a reference to Commodore Perry's expeditions to open Japan to foreign intercourse a century earlier-and of a "Battle of Midway for the Japanese electronics industry.""6 "American private capital," reported one influential Japanese daily in a front-page article, "is taking a deep interest in the fast growth rate of the Japanese economy, which provides strong incentives for large-scale [foreign] capital to seek investment opportunities in Japan. . . . MITI is now faced with the problem of Texas Instruments," the Japanese paper continued, "and is racking its brain to formulate a policy to cope with the situation."l37 Nor did the Japanese government hold out much hope for rapid approval of TI's investment application. Officially, MITI neither approved nor rejected the application, but simply explained that the government's foreign-exchange reserves were currently "insufficient" to allow for the TI investment, and that it would be difficult to say just when such reserves would become adequate. And Japan, officials reminded their American counterparts, was permitted under the bilateral FCN Treaty to restrict investment from the U.S. whenever foreign-exchange reserves were deemed ''very low."l38 Unofficially, however, MITI expressed its outright refusal to grant the TI application for a wholly owned subsidiary. MITI officials were polite and noncommittal during TI'S initial presentations to key bureaucrats, but these same officials soon indicated to representatives of the American company their strong opposition to the investment proposal.139 'We can resolve all of this if you'd just withdraw the application," TI was t0ld.140 Indeed, a former official of MITI's Electronics Section recalled that the Ministry "would not consider a 100% [TI investment]. We [therefore] decided to hold [TI's application] in hand and squash it."l41 "The Japanese," Shepherd later noted with some understatement, "weren't really anxious to have us."142 Behind the government's hostility-and much of the press hysteria-stood the Japanese electronics industry. Most of the key domestic firms, who placed great stock in the future importance of advanced electronics, had begun research and development projects in semiconductors by the early 1950s, and some had started work on

Thi

d

l d df

The Screen Door, 1950-1970

integrated circuits less than a decade later.143 Mitsubishi Electric was one of the first local companies to initiate such projects, and was followed soon thereafter by NEC, Hitachi, and Toshiba.144 Commercial production of ICs by Japanese firms began in 1966, and by the end of the decade all of the major domestic electronics firms had entered the field.145 Despite this progress, however, Japanese companies lagged considerably behind their Western, and particularly American, counterparts in the manufacture of integrated circuits and other semiconductor products throughout the 1950s and 1960s. Some European firms, such as Holland's Phillips, West Germany's Siemens, and Britain's Plessey, had made important strides in the IC field, but American companies took advantage of leading-edge technologies developed at home to pioneer the production of increasingly sophisticated IC products.146 Japanese firms, on the other hand, stood at least a generation behind the United States and Western Europe in the IC field during these years and therefore chose to spend most of their resources absorbing Western technologies.147 The Japanese government adopted numerous policies to support the development of the local semiconductor industry. Significant public support followed passage of the Electronics Industry Promotion Law in 1957, and such support became still greater during the 1960s. Many of these policies provided direct assistance to Japanese firms. These included subsidized loans, dissemination of research findings from government labs, and "Buy Japanese" procurement practices by NTT and other public consumers of advanced electronics. Additional government policies indirectly assisted local semiconductor firms by limiting foreign participation in the Japanese market. In the critical field of integrated circuits, for example, the authorities sharply limited imports through tariffs, quotas, and other means. In addition, officials greatly curtailed inflows of direct investment from the very emergence of the industry, and denied all foreign requests to establish wholly owned subsidiaries in the semiconductor field.148 These policies decisively influenced the nature of foreign participation in the emerging Japanese semiconductor market. Barred from exporting to or directly investing in Japan, most foreign producers

Thi

d

l d df

The Screen Door, 1950-1970

who chose to do business there had little choice but to license their technology to Japanese competitors. Such licensing fostered critical technology flows to Japanese firms from many of the world's leading electronics manufacturers. In the 1950s, for example, Matsushita licensed important electronics technologies from Philips, and NEC obtained access to Fairchild's seminal planar technology, which was critical for the manufacture of I C S . ' ~TI, ~ however, continued to resist strong Japanese pressures to license its technology, and persisted instead in its efforts to gain investment permission: "Texas Instruments," management declared in a 1965 draft press release, "stated its policy is not to make [its IC] patents available to the industry of any country in which it is not allowed to operate as a full and equal industry participant, and will vigorously prosecute the infringement of these patents throughout the world."l50 News of TI's 1964 investment application to MITI-immediately communicated to key representatives of the ranking electronics companies-rocked the Japanese industry. A ranking member of the Electronics Industry Association of Japan (EIAJ), the private industry group representing major domestic semiconductor manufacturers, first got word of the TI application from the Industrial Section of MITI's Business Bureau. When he learned of TI's plans during one of his regular visits to the Section, this EIAJ representative raced back to the Association office to notify member companies. In response, industry representatives soon began to speak of the potentially "grave influence" of a TI entry on the development of the Japanese semiconductor industry.'51 Fearing TI's competitive threat if allowed to establish a local operation, the major domestic electronics firms banded together to press the government to deny TI's request and to devise additional joint strategies. Leaders of these firms first submitted to MITI a letter of opposition to the investment application, and individually lobbied key officials in the bureaucracy152 These industry leaders then lodged an official objection to TI's (then still pending) 1960 IC patent application through the Foreign Patents Committee of the ELAJ.l53 Indeed, the Japanese press even suggested that these leaders then concluded a "gentleman's agreement" that no individual member would

Thi

d

l d df

The Screen Door, 1950-1970

break ranks with the others and joint venture with the U.S. firm.154 TI continued, however, to press its case. O n numerous occasions, TI'S Senior Vice-president, Legal Counsel, and other managers visited Tokyo, where they appealed to Japanese business and government leaders to end their opposition to the proposed investment. In addition, despite earlier disappointing experiences with American government officials-"The only time I ever went to the U.S. Embassy was when I got caught in the rain: they were useless," commented one former TI official stationed in Tokyo in the early 1960s only half jokingly-the Texas company even approached the U.S. Secretary of Commerce for assistance.155 This official responded by personally raising the TI issue with the MITI leadership, yet the results were disappointing: "I had an opportunity to discuss your case with Minister of International Trade and Industry [Minister] Takeo Miki Tuesday," Secretary John T. Connor wrote to TI Senior VicePresident S. T. Harris on 15 July 1965. "I cannot say that Minister Miki indicated any major alteration in the Japanese Government's handling of such applications, as he was equally vocal concerning problems of Japanese industries which prompt the'governmental attitude."156 Connor, however, remained optimistic. Only changes in the Japanese electronics industry in the mid-1960s would force business-and, soon thereafter, the government-to modify its opposition to TI'S proposed investment. Two developments in particular encouraged the industry to act. First, by the mid-1960s Japanese firms had begun to make considerable progress in the integratedcircuit field. They therefore grew increasingly confident that, with proper controls, TI'S eventual penetration of the Japanese market could be contained-even if the American company were permitted to establish a local manufacturing operation. Second, this progress encouraged Mitsubishi Electric, Sony, and other Japanese firms to prepare for the day when they could export ICs to the U.S. and other overseas markets. To produce ICs, however, they had to incorporate technologies already developed by TI. In the domestic market, these firms could manufacture ICs without fear of reprisal from TI, for the Japanese government had not issued requisite patents to the U.S. firm. In the United States and Western Eu-

Thi

d

l d df

The Screen Door, 1950-1970

rope, however, local authorities already had granted patent protection to TI. Japanese firms therefore risked legal retaliation by infringing TI patents if they exported ICs to these vital overseas markets. The leading electronics companies therefore decided to fashion a new Japanese strategy towards the Texas Instruments challenge, and in August 1966 established the Semiconductor Management Committee (first called the Semiconductor Countemzeasures Committee) under the auspices of the EIAJ to coordinate that strategy.157 In response to these new developments, MITI, following extended discussions with the industry, modified its initial policy towards the American company. Government representatives announced on 30 August 1966 that TI would be allowed to invest in Japan provided the firm met 3 conditions. (1) TI would have to establish with a Japanese electronics manufacturer a joint venture in which TI would hold no more than 50 percent of the equity. (2) TI would have to "consult" with the Japanese government about the joint venture's production levels for a period of 3 years after the new company's establishment. (3) Most important, TI would have to license its critical IC technologies to major Japanese electronics firms.158 This proposal the government portrayed as a major change in official policy: "MITI emphasized," according to Nihon keizai shinbun, "that the Japanese government policy constitutes the biggest compromise on the part of Japan ever made to the United States."l59 Texas Instruments, however, declined the offer and pressed on for greater access. Noting that the company had already established wholly owned subsidiaries in numerous countries in line with its longstanding policy on overseas investment, TI management refused to enter Japan on MITI's proposed terms. "TI cannot accept the three conditions [laid down] by the Japanese government," Chairman Haggerty asserted. "There is no change from TI'S original policy"160 The company even considered suing the Japanese government for breach of the U.S.-Japan FCN Treaty, but concluded that such an action might well prove counter-productive, because it could create hostility potentially injurious to TI'S long-term relationships in Japan.161 Not even the efforts of the U.S. government could produce an adequate change in Japanese policies. Despite intensive discussions with

Thi

d

l d df

The Screen Door, 1950-1970

ranking Japanese officials, for example, U.S. Commerce Secretary Connor expressed disappointment upon receiving notification of MITI's 3 conditions for the TI entry. "Thank you for your letter. . . regarding the proposed establishment in Japan of Texas Instruments Japan, Ltd.," Connor wrote to MITI Minister Miki in October, 1966. He continued: You will recall that, when we discussed the general problem of Japan's restrictions on American investment in Kyoto this past July, and when I later spoke on the same subject in Tokyo, I stressed the substantial benefits that would accrue to Japan if its foreign investment policies and practices were liberalized. I continue to feel, as does the American business community as well as my associates in the United States Government, that these benefits are very real and compelling. They are, I believe, fully applicable to the Texas Instruments case. . . . It is with regret, therefore, that . . . I find that these views apparently are not shared by you and your Mini~try.16~

Further official U.S. appeals by Secretary Connor on the basis of national treatment guaranteed in the bilateral FCN Treaty proved similarly ineffective.163 Foreign-exchange reserves remained inadequate, Connor was told, so no treaty violation had occurred. Continued U.S. pressure for TI'S unfettered entry, some Japanese officials warned, could well lead the authorities to block other pending U.S. FDI applications, slow the more general process of capital liberalization, and harm the overall U.S.-Japanese relationship. Moreover, these officials suggested, Japan might go so far as to seek revision of the bilateral FCN Treaty itself.164 An editorial in Japan's leading business daily even suggested that American failure to "understand" Japanese treatment of TI and similar FDI cases might endanger Japan's support for U.S. security p01icies.l~~ Still greater economic pressures, however, eventually forced Japanese industry to find a solution to the TI problem. Those pressures became acute when Japanese electronics companies were ready to export to the United States products which contained integrated circuits. Sony apparently felt the pressure first: In October 1966, after putting on the American market its new pocket radio containing

Thi

d

l d df

The Screen Door, 1950-1970

ICs, TI warned Sony that it would be sued for patent violations if Sony did not withdraw the patent-infringingradio from the U.S. market. Reluctantly, Sony complied. Pressures grew still more intense in September 1967, when Hayakawa Electric (now Sharp) prepared to ship to the United States its new C-32 desktop calculator, which contained ICs supplied by Mitsubishi Electric. The first lot of 500 calculators was just about ready when Mitsubishi, also apparently fearing a lawsuit from TI, instructed Hayakawa to stop the shipment. By late September, it had become clear that Japanese firms would not risk exporting ICs to the United States and other Western markets until the patent issue with TI was resolved.166 In response to these pressures, Japanese companies now took a direct role in fashioning a compromise with TI. At the instruction of the Semiconductor Management Committee, Mitsubishi Electric dispatched a 3-man team to the United States with specific instructions to reopen talks with the American company. Arriving at TI headquarters on 26 September 1967-ccunannounced and unexpected and uninvited," in the words of one former TI manager-the Mitsubishi representatives offered new, greatly modified proposals which appeared to meet many of TI'S initial objections.167 TI Chairman Haggerty immediately expressed interest in these proposals, and within weeks two TI representatives were dispatched to Tokyo for talks with their Japanese counterparts.168 Negotiations in Japan between TI and the local industry finally produced results. Although the American firm had expected to bargain principally with Mitsubishi, once in Tokyo TI was asked to speak also with leaders of a number of other Japanese electronics firms and with various government officials. Indeed, early in this process, Sony emerged as TI%principal Japanese interlocutor. At a critical meeting in late 1967 in Tokyo, Sony Vice-president Morita Akio specifically offered to establish a 50/50 joint venture which TI would be allowed effectively to control, and also promised that Sony would agree to sell its equity in the venture to the U.S. partner 3 years after the new company's establishment. Sony would continue to manufacture integrated circuits, Morita further stipulated, but would do so only through its own wholly owned operations. In return, Sony

Thi

d

l d df

The Screen Door, 1950-1970

asked that TI agree to license its key IC patents to major Japanese firms, and to other conditions.169 Although this proffered deal did not immediately give TI complete investment access to the Japanese market, Morita's proposal proved minimally acceptable and, in early 1968, Dallas therefore agreed in principle to the Sony deal. MITI officials, reportedly during a meeting with TI managers in Morita's private residence, indicated that they were prepared to observe the accord.170 Before TI could establish a local operation, however, it first had to conclude patent-licensing agreements with local firms. The U.S. company conducted two sets of parallel talks. The first set involved arrangements between TI and all the major Japanese semiconductor manufacturers except NEC.I7l Already paying royalty rates to produce ICs of 2-1/2 percent to Western Electric, 4 percent to Fairchild, and 1/2 percent to NEC, these Japanese firms were particularly eager to minimize the fees for the TI ~atents.17~ They therefore pooled their own IC-related technologies to gain maximum bargaining position, and conducted all negotiations with TI through the EIAJ. Press accounts also suggested that they threatened to further delay TI'S longstanding patent applications in Japan to gain further le~erage.17~ After some 3 months of intensive negotiation, TI and the ELAJ settled on the terms of the licenses for these Japanese firms: a 3-1/2-percent royalty rate on sales for a period of 10 years.174 The other set of talks involved arrangements between TI and NEC, whose bargaining position was stronger than that of other Japanese electronics firms. To manufacture ICs in all markets except Japan's, TI had gained the right to use Fairchild's planar technology in exchange for licenses permitting Fairchild to use TI'S Kilby patents. In Japan, however, NEC had obtained an exclusive license for the Fairchild technology-"NEC was Fairchild in Japan," as one TI official later put it-so TI and NEC worked out a separate crosslicensing agreement, which considerably reduced the rate TI charged NEC for the Kilby patents.175 Negotiations between the American company and the Japanese industry now completed, the Japanese government in April 1968-4 years and 3 months after TI had filed its initial investment applica-

Thi

d

l d df

The Screen Door, 1950-1970

tion-finally approved the establishment of Texas Instruments Japan. That approval, however, was subject to important conditions similar to those originally set forth in the 1965 MITI pronouncement. (1) As earlier agreed, TI initially had to establish its local company as an equal-partnership joint venture with Sony. (2) TI would have to "consult" with MITI about production levels from its Japan-based vent ~ r e . '(3) ~ ~The U.S. company was obliged to license its key IC patents to its principal Japanese competitors. At the same time, however, MOF submitted a confidential side letter to TI promising that the FIDC would give "favorable consideration" to a TI buy-out of Sony's equity in the joint venture 3 years after the founding of the new company. TI settled for an informal side letter because the authorities refused to provide formal assurances that they would validate a 100-percent TI direct investment at a future date. TI received a second confidential side letter from Ibuka and Morita, which pledged that Sony would indeed agree to sell its one-half interest in the joint venture 3 years after its creation.177 Sony and the Japanese government honored their 1968 commitments to TI, but TI would not enjoy in coming years the degree of success in Japan it already had achieved in other major world markets where it operated. Following official approval of the investmenttogether with TI patent licenses for all the major Japanese electronics firms, which rapidly led to an explosion of pent-up Japanese exports of products incorporating integrated circuits (see Figure 10)-TI located a suitable production site in suburban Tokyo and transferred to its new operations there necessary technology and other resources. Texas Instruments Japan began to assemble integrated circuits in November 1968, and MITI approved TI's purchase of the Sony shares in the joint venture in December 1971.178Yet TI's success was far from complete: Although the U.S. company led all other foreign semiconductor firms in sales in Japan throughout the rest of the decade, it could not attain in Japan anything approaching the market share it achieved in other major industrialized c0untries.1~~ Nor did Japanese treatment of TI'S patent application conform to the American firm's experiences in other important industrialized economies: Not until 1989-29 years after the American company had first applied for legal protection in

Thi

d

l d df

The Screen Door, 1950-1970

Japanese IC Production and MITI A p p r d of the Texas Instruments Investment Application 1

I

1916

1917

1971

1919

1979

1971

1977

Source: N i o n Denahi Kikai Kbgybkai (Elenronia Industry Association of Japan), anrrhi kagyd mfinmrhi (A thinyycu history of the electronics industry), p 271.

Japan-did the Japanese government finally grant TI a patent for all ICs made or used in Japan.180 By the time the Japanese authorities had granted such a patent, similar patents already had expired in all other major countries where TI first had made application.181 OTHER AMERICAN MULTINATIONALS

Coca-Cola and Texas Instruments were not the only American companies that managed to pass through Japan's Screen Door: There were a few other notable exceptions, of which IBM stands out as perhaps the most significant of all. Postwar Japan's rapid economic growth encouraged IBM to expand its local presence at an early date. Soon after the Occupation, IBM Japan experienced brisk demand for its punched-card-data-processing machines from Japanese business and government users. In consequence, IBM started to manufacture sorters and other products at its local subsidiary, and to steadily increase its Japanese personnel and sales offices. Responding to this continued

Thi

d

l d df

The Screen Door, 1950-1970

growth in local demand, the American company then decided to seek permission to produce locally its new generation of transistorized computers. IBM therefore applied to MITI, in 1956, for permission under the FIL to import into Japan technology and other assets necessary to manufacture electronic computers at its wholly owned Japanese subsidiary, and to remit earnings from this business.182 Officials at MITI, however, firmly opposed IBM's new investment project. Government validation of a 100-percent foreign-owned company to produce computers in Japan was out of the question, MITI representatives told top IBM negotiator James Birkenstock on the first of his countless negotiating trips to Tokyo over the next several years, and even validation of a majority IBM-owned operation would violate longstanding government policies towards FDI. MITI advised instead that IBM form a joint venture with a Japanese electronics firm-which the government then promised to validate, provided IBM held no more than 49 percent of the equity-and transfer to that venture necessary machinery, technology, and know-how. The trade ministry went so far as to suggest 5 possible Japanese partners-Hitachi, Fujitsu, NEC, Oki Electric, and Toshiba. MITI also advised IBM that it would have to license to local competitors some of its most basic and valuable computer patents-patents that would be vital to the development of a Japanese computer industryif it hoped to gain government permission for even a 49-percent stake in such a local manufacturing venture.18' Similar to the entry experiences of Coke and TI, IBM's application to MITI was forcefully resisted by a Japanese industry which felt threatened by a powerful foreign company. In the IBM case, that industry was the collection of local firms which had already entered the electronics and related fields and which now hoped to participate in the young but quickly developing computer industry. It is true that the Japanese already had made modest advances in the computer industry at the time IBM sought to enter: Public agencies had initiated research projects into computers in the early 1950s, for example, and Fujitsu, NTT, and other Japanese organizations had begun to produce limited numbers of relay, vacuum-tube, and point-type transistor computers soon thereafter. Still, local companies trailed well behind IBM and many other major foreign computer companies during these early postwar years.lE4

Thi

d

l d df

The Screen Door, 1950-1970

To support the development of the industry, the government assisted Japanese firms and discriminated against foreign companies in the computer field. The Electronics Industry Act of 1957, for example, provided direct subsidies, low-interest government loans, accelerated depreciation and other forms of financial assistance to Japanese companies developing computer hardware. The Act also enabled sectors of the electronics industry to form production, research, procurement, and other cartels without fear of sanctions under the Anti-Monopoly Law. At the same time, the authorities strictly regulated imports and investments from foreign computer companies, and limited as well the flow of technology to local subsidiaries of overseas electronics firms.185 Confronted with the specter of the giant American company producing a new, more powerful generation of computers within the domestic market, the major Japanese electronics firms intensively lobbied MITI and other public agencies to block IBM's FIL application. Individually and through the EIAJ, these firms pressed the government to force IBM instead to joint venture with Japanese interests, and to transfer key technologies to local competitors. Indeed, these companies often waited in the background as MITI conducted its negotiations with the American firm, and would then hold lengthy discussions with MITI just after the negotiating sessions ended.186 This industry opposition lay behind the deadlock between IBM and MITI, and even encouraged MITI to toughen its demands on IBM. To the original joint-venture and technology conditions for validation of the IBM application, MITI soon demanded as well that the U.S. company reduce the 10-percent royalty rate IBM customarily charged for patent licenses, transfer know-how related to IBM's computer patents to Japanese competitors, and delay introduction through its Japanese subsidiary of certain advanced computers and computer technologies. If IBM refused to accept these conditions, MITI officials threatened Birkenstock, the government would see to it that IBM's plans to manufacture its new computers in Japan would fail. Government officers told Birkenstock, in effect: Look, if IBM Japan doesn't accept and conform to what we propose to you, IBM Japan will not be able to borrow any money in Japan, nor will

Thi

d

l d df

The Screen Door, 1950-1970 they be able to buy any land. They won't be able to expand, nor will they be able to hire Japanese people. They have to have our approval. How are they going to get this approval without our co0peration?l8~

MITI's validation conditions, however, proved unacceptable to IBM, which insisted on maintaining, among other practices, its longstanding policy of establishing only wholly owned subsidiaries in foreign countries. Therefore, in early 1960-after more than 3 years of negotiations between IBM and MITI-Birkenstock told his Japanese interlocutors that the American company wished to terminate the entry talks, and that the IBM negotiator would return to the United States on an early flight.188 Faced with the imminent collapse of the entire negotiation-and, perhaps, a final opportunity to gain access to IBM patents and technology which local companies, at least in the words of IBM Japan's first Japanese President, regarded as "extremely desirable and close to essential to the progress of the industry9'-local industry representatives apparently intervened directly at the last moment to clinch a dea1.189 Just after this critical exchange between IBM and MITI, Chairman of the Board Karata of Hitachi suddenly contacted Birkenstock at his hotel to discuss the course of the negotiations. Karata professed sympathy for IBM's position, urged Birkenstock to reconsider his decision t,o terminate the talks, and asked the American negotiator to meet directly with the heads of NEC, Fujitsu, Toshiba, and other major domestic firms to find a way around the impasse. Birkenstock agreed to such a meeting, and, just hours before it had begun, MITI abruptly changed its position and agreed to a list of conditions minimally acceptable to I B M . ~ ~ MITI O apparently had altered its stance under direct pressure from the domestic industry. The final agreement, completed in December 1960, essentially involved an exchange of American technology for Japanese market access. Under its terms, MITI granted IBM permission to transfer technology, know-how, and machinery to its local subsidiary for the production of electronic computers. The government also validated IBM Japan under the FIL, and provided the U.S. company with remittance guarantees for its local operation-the first time in its 23-year history that IBM's Japanese subsidiary enjoyed such a privilege. In

Thi

d

l d df

The Screen Door, 1950-1970

return for this unusual relaxation of foreign-investment controls, however, MITI obliged IBM to make major concessions to the local industry. (1) IBM had to license its basic computer patents to numerous Japanese companies, including all 7 major domestic computer manufacturers. (2) MITI limited the term of the investment validation to 5 years, after which time the validation would come up for renegotiation.191(3) IBM agreed to "consult" with the government on a periodic basis over the types and numbers of machines IBM would manufacture in Japan.192 The Japanese government abided by the letter of the agreement with IBM but instituted other measures which limited the American company's performance in the market in subsequent years. These measures included subsidies for leases of Japanese-made computers, discriminatory public procurement policies, controls on private-sector purchases of IBM and other foreign-made machines, and a host of other initiatives aimed at promoting the domestic computer indust17.19~ Such actions limited IBM's penetration of the Japanese market for many years after the groundbreaking agreements of 1960.194 DuPont's experiences directly investing in a Japanese chemical operation parallel in many respects those of other "successful" investors during the Screen Door era. Having exported to and directly invested in Japan from before World War 11, DuPont desired to participate in the growing postwar market as ~ e 1 1 . 1In~the ~ late 1950s, the American chemical company therefore chose to capitalize on its technique for the manufacture of neoprene, a type of synthetic rubber with important industrial applications, by establishing a manufacturing plant in Japan. Local officials indicated that the government, following customary practice, would not allow a wholly owned DuPont investment in the chemical industry, however, so DuPont proposed to MITI in 1959 that the Ministry validate instead a joint venture between DuPont and Japanese chemical maker S h ~ w aDenkb. The play of domestic business forces apparently decided the fate of the DuPont application. At first, MITI refused to validate the jointventure proposal because a number of purely Japanese-owned companies, such as Kanegafuchi Chemical Industry, already had begun to attempt local manufacture of neoprene. However, when it became

Thi

d

l d df

The Screen Door, 1950-1970

clear that these Japanese companies could not produce neoprene without foreign technology, Sh6wa Denk6 apparently prevailed and secured official FIL authorization and related guarantees for the joint venture. "MITI had to be convinced," according to the U.S. Commercial Attach6 in the Tokyo Embassy, "that technology for producing neoprene could be obtained in no other way and that DuPont would not accept less than a 50 percent Following these realizations, in late 1960 the government approved the establishment of Sh6wa Neoprene as an equal partnership joint venture between S h ~ w a Denk6 and DuPont. However, MITI insisted, still according to the U.S. diplomat, that the venture limit its production "because some other Japanese companies are trying to produce the same product."l97 A limited number of other foreign companies also managed to directly invest in postwar Japan with FIL guarantees. Necessary but not sufficient conditions to gain such guarantees generally included possession of technologies or other assets strongly desired by Japanese firms yet not available to these firms through alternative means, the expenditure of considerable resources required to negotiate complex arrangements with numerous Japanese actors over a significant period of time, and, in most cases, the willingness to cede significant control to Japanese joint-venture partners by accepting minority or equal partnership arrangements. (See Figure 11 for FIL approvals by percentage of foreign ownership, 1950-1964.) U.S. and other foreign companies which could meet these various conditions generally fell within the petroleum, machinery, and chemical industries, which explains the predominance of companies in those industries granted entry permission under the FIL. In addition to the modest number of foreign companies that gained FIL-approved entry, some American firms gambled on entry through the "yen-base system." Although investments under this system posed considerable risks, as already noted, some companies proved so eager to invest that they chose this speculative investment alternative during the 7-year period the system was in operation. General Foods, Scott Paper, and AMP were among the American companies that took advantage of this investment loophole. Yet the authorities sealed off even this restricted route in mid-1963-shortly

Thi

d

l d df

Thi

d

l d df

The Screen Door, 1950-1970

after the number of foreign entries began to increase considerablyby which time just 289 of these yen-base ventures of all sizes and industries had managed to get established.198 Unlike the FIL approval system, the yen-base procedure allowed foreign investors to choose freely their investment vehicle. Given this choice-and in contrast to the prevalent foreign minority ownership vehicle through the FILforeign firms chose to establish majority-or equal-partnershipJapanese affiliates in roughly 87 percent of the yen-base-company cases.199 For most American companies, however, technology licensing offered the only viable method of participating in the Japanese market during the Screen Door period. The experience of the Singer Sewing Machine Company is a case in point. Having led all other sewingmachine companies in market share in prewar Japan before its forced withdrawal in the 1930s, Singer eagerly sought to participate in the Japanese market during the postwar period as well. Aware that regulations virtually ruled out the possibility of gaining FIL validation for a wholly owned subsidiary, Singer proposed instead to set up a joint venture with a Japanese firm locally to produce sewing machines. In 1954, Singer therefore filed applications with the government under the FIL to directly invest in, and to transfer technology to, the proposed Pine Sewing Machine joint venture. Domestic business opposition, however, blocked the Singer investment. Although Singer's local partner supported the application of the American company, numerous indigenous firms pressed the government to deny necessary validations: "There are many small manufacturers in this field," the U.S. Commercial Attachk reported from Tokyo, "and the fear has been present from the outset that a large, powerful foreign organization like Singer might create competitive conditions in the industry such that many Japanese manufacturers would be forced out of business."200 As a result of this industry pressure, the government refused to act on any part of the Singer application for 6 years. Finally, in mid-1960, the authorities notified the American company that the technology-licensing agreement between Singer and Pine would be officially validated. The government remained silent, however, about the American request for permission to directly invest in the Pine venture. Singer licensed.

Thi

d

l d df

The Screen Door, 1950-1970 Other U.S. firms, though they entertained the investment option, could be easily persuaded by their Japanese hosts to license instead. Fairchild provides one such example. A young and highly innovative electronics manufacturer in the late 1950s, the California-based company was particularly competitive in the semiconductor industry. This competitiveness stemmed in large part from its patented invention of the planar process, a technology fundamental to the manufacture of semiconductors. Fairchild moved quickly to develop international markets based on these and other technological strengths. The firm first exported, and then invested overseas. Indeed, Fairchild became the very first American semiconductor company to directly invest in Asia by setting up an assembly operation in Hong Kong in 1960. Later, the company directly invested in South Korea as well as Western Europe. Fairchild also explored opportunities to participate in the Japanese market, but found the local investment climate chilly. Managers from Fairchild traveled to Japan often from about 1959 to examine trade and investment possibilities there, and by about 1960 had made arrangements to supply modest quantities of electronic components to Japanese manufacturers. The potential of the Japanese market and Fairchild's inability to achieve more significant sales, however, soon encouraged the firm to explore additional means to develop its business in that market. Still a relatively young and small company, Fairchild apparently inclined towards licensing its technology in Japan, but examined as well the possibility of investing before making up its mind. When Fairchild management approached Japanese business and government leaders about the investment option, however, their reactions were uniformly negative.201 Nor did American oficials in Japan offer much encouragement: "The only thing important for the U.S. Embassy was maintaining the U.S. bases in Japan," according to Robert Noyce, then General Manager of Fairchild's Semiconductor Division. "The Ambassador's interest was strictly in military relations with Japan."202The lack of trade and investment opportunities, according to Noyce, left Fairchild with little choice even if it had pursued FDI (or exports) more vigorously:

Thi

d

l d df

The Screen Door, 1950-1970 We were trying to exploit the intellectual property we had. We felt that we were not going to get very much by simply trying to sell there, and you couldn't invest. So licensing was the only option-you were sort of forced into that.203

Yet even obtaining a sizable return from Japan on its planar process was not an easy task. In the midst of lengthy negotiations over a technology-licensing agreement with NEC, according to thenExecutive Vice-president of Fairchild Richard Hodgson, the American company was warned by NEC President Kobayashi that the royalty and related rates had to be kept at low levels if the two firms hoped to gain the requisite approval of a MITI-run advisory committee: "Kobayashi always kept saying that he had to check it out with MITI," Hodgson recalled, "to get the rates and the mimimums agreed to."204Partially as a result of that warning, Fairchild softened its position and reduced the rates it had initially proposed. Later, the American firm learned that Kobayashi had served as the chairman of that MITI committee during the negotiations.205 Japanese controls do not, of course, explain the outcome of every actual or potential foreign investment in the Screen Door era. Some American companies, for instance, actively preferred to license their technology to Japanese firms. Westinghouse, to cite but one important example, licensed key elec'tronic technologies to Mitsubishi Electric from 1950 based on a relationship that dated from the prewar era. This policy conformed to the overall foreign strategy of Westinghouse, which had suffered reverses in its direct European investments early in the century and therefore chose subsequently to license rather than invest overseas.206Other U.S. firms such as ITT, among the small number already operating in Japan, failed to maintain adequate commitments to their Japanese interests and chose instead to sell off some of these interests. And still others, including Eastman Kodak, simply did not make a serious effort to invest.207 These firms discounted the significance of Japanese competition, believed that better opportunities lay elsewhere, lacked adequate resources to invest in far-away markets, or opted against investment in Japan for other reasons. Nonetheless, Japanese restrictions critically influenced the develop-

Thi

d

l d df

The Screen Door, 1950-1970

ment of American multinational investment in postwar Japan. These restrictions generally prevented even "successful" U.S. firms from investing over long periods of time, extracted technology and other resources from many of these same firms in exchange for eventual (but conditional) permission to enter, and often forced such companies to share ownership with Japanese firms. In addition, Japanese restrictions effectively discouraged numerous other American companies even from making formal application to directly invest and induced them instead to license their technologies to local competitors.

CONCLUSIONS Far-reaching Japanese controls on the international movement of capital, technology, foreign exchange, and other economic transactions decisively influenced levels of United States direct investment in Japan during the Screen Door era. Under these restrictions, FIL approvals for American direct manufacturing investment in Japan between 1951 and 1970 never exceeded $67 million in any single year, and the total value of such validations for the entire two decades amounted to less than $320 million.208 Moreover, total stocks of U.S. FDI in Japan as a percentage of total stocks of U.S. FDI worldwide, which stood at a meager 0.2 percent in 1950, climbed to only 0.8 percent in 1960 and to roughly 2.0 percent by 1970.209Indeed, despite the rapid growth of the postwar Japanese economy and the powerful investment incentives this growth, together with investment-inducing trade barriers, created for American companies, Japan still ranked eleventh as host to total stocks of United States FDI in 1970-trailing behind Venezuela, Mexico, and Brazil in addition to Canada, the United Kingdom, Germany, France, and many other countries. Unable to invest in or export to Japan, many American and other foreign companies, ranging across virtually the entire breadth of industrial activity, therefore concluded licensing agreements with Japanese firms throughout the Screen Door period. Between 1950 and 1954 alone, for example, American companies concluded at least 307 such agreements with Japanese firms in fields as diverse as pulp pro-

Thi

d

l d df

The Screen Door, 1950-1970

cessing, transistor manufacturing, dam construction, and textile finishing.210 And for the period 1950-1970 as a whole, the total number of U.S. licensing agreements with Japanese firms figured in the thousands.211 Nor was technology licensing by foreign firms limited to American companies: In addition to such companies, firms from Germany, Switzerland, Great Britain, and France also concluded large numbers of contracts with their Japanese counterparts to gain at least a limited foothold in the local market. Agreements in the machinery and chemical fields predominated.212 These restrictions did not, of course, bar all U.S. direct investment during the 1950s and 1960s. Some companies, such as Coca-Cola and Texas Instruments, eventually did manage to invest in the local market. Yet these were exceptional cases, and to gain such access, these firms first had to enlist the backing of powerful Japanese business interests to support their entry. This support, in turn, generally required that the U.S. firm possess marketing, technological, or other assets sought by Japanese industry, yet vigilantly protected by the outsider until a deal might be struck. Indeed, reflecting later on the dynamics of the Texas Instruments entry, for example, TI'S chief negotiator during the critical 1967 talks observed that "the primary force that caused this [investment issue] to be resolved, so that we would get in, was the pressure that built up in Japan-the pressure on the manufa~turers."21~Here again, the power of domestic business proved critical.

Thi

d

l d df

FIVE

The Inner Door, 1970-1980

The Japanese economy continued to offer major attractions for the United States direct investor in the 1970s. Two new factors in particular propelled foreign companies to make new approaches to the Japanese market. For one, Japan pursued with great success an economic strategy based in part on export-led growth. The impressive export performance of the automobile, electronics, and other industries naturally tempted American companies to invest in Japan so that they could benefit from the same country-specific advantages enjoyed by their Japanese competitors. For another, strong and sustained pressure from the mid-1960s finally compelled the Japanese government to pledge major policy changes in the new decade which would remove many official obstacles to foreign investment. These changes the authorities did indeed undertake through a phased deregulation of public controls over such investment officially called the "capitalliberalization" program. This steadily improving political environ-

Thi

d

l d df

The Inner Door, 1970-1980

ment, together with export and other economic successes, naturally added to the attractions of the Japanese market from the standpoint of the foreign direct investor. Despite these attractions, however, Japanese restrictions still posed major impediments to the free flow of direct investment from abroad. Public controls continued to limit such investment in a number of industries through the early to mid-1970s. And, as government regulation eased during the decade, private-sector restrictions became increasingly important means of limiting fresh inflows of foreign capital. These private impediments, though often industry-, group- or firm-specific, generally ad hoc in character, and less blatant than earlier, public controls, nonetheless provide an important explanation for why U.S. direct investment in Japan continued to languish during the 1970s. In many respects, this period therefore is roughly analogous to an "Inner Door," for obstacles to access increasingly came from an interior layer of business practices no longer protected by previous exterior layers of government regulation. American companies encountered numerous difficulties as they tried to establish or expand the scope of their operations even in the largely "liberalized" Japan of the 1970s. In the first major test of capital liberalization, for example, Dow Chemical quickly discovered that freedom to directly invest in the chemical industry was far from complete. And Motorola, which had sought to enter as a direct investor well before the start of the period, also encountered substantial barriers in its efforts to directly invest in the Japanese semiconductor industry, even after public controls had been lifted. Nor were the experiences of these two firms isolated examples: All three of the major American automobile companies, to cite other important sources of U.S. direct investment, remained virtually frozen into minority positions in Japanese motor-vehicle companies, even after the lifting of formal investment controls. Of course, operative Japanese restrictions do not explain the investment behavior of all American companies towards Japan in the 1970s. Some U.S. firms hesitated to invest because they remained leery of official liberalization claims following decades of tight control, or because they continued to underestimate the growth and

Thi

d

l d df

The Inner Door, 1970-1980

international implications of Japanese competition. Others became preoccupied with developments largely unrelated to Japan in the 1970s, a decade that witnessed a more general slowdown of U.S. investment abroad following two decades of massive outflows. Still, the operation of investment restrictions continued significantly to affect the level of FDI in Japan, even after the formal conclusion of the government's capital-liberalizationprogram.

JAPANESE RESTRICTIONS MOTIVES

Rising pressure from the 1960s on the Japanese government to liberalize FDI controls encouraged policy changes which would continue through the 1970s. Foreign governments, overseas corporations, multilateral institutions, and, as we shall see, even many domestic corporations increasingly pressed the Japanese government to deregulate capital inflows. These appeals for liberalization began to gather strength from 1964, when Japan assumed obligations to deregulate foreign capital and foreign exchange controls as conditions for full membership in the OECD and the IMF, respectively. Although many officials at MITI and other public agencies remained unconvinced that freer capital flows would produce the overall benefits to the domestic economy so loudly proclaimed by Western observers and even some of their own domestic critics, this rising pressure ultimately motivated the authorities to adopt a capital-liberalization program. "MITI's basic approach has been to gain time as long as the opponents are not too angry," Amaya Naohiro, an unusually outspoken MITI official, revealed in 1969. Many in government still favored capital controls, yet, by the late 1960s, officials felt they no longer could ignore mounting pressures for change. 'We have reached a point," Amaya concluded in his 1969 remarks, for example, "where an early liberalization of capital transactions becomes mandatory."' Public decontrol would become the order of the day.2 Even though the Japanese government had opted for capital deregulation by the late 1960s, numerous Japanese companies continued

Thi

d

l d df

The Inner Door, 1970-1980

to oppose unrestricted foreign investment for a variety of reasons. "Readily carrying out capital. . . decontrol," asserted leaders of the Japanese computer industry as late as 1971, for example, "would mean destruction of the domestic computer industry and run counter not only to the interests of the industry but the nation at large."3 If FDI were to be rapidly and effectively liberalized, according to Sumitomo Bank's Asai Kbji, ''Japan would become a battleground . . . bankruptcy in marginal industries would result, there would be a disruption of commercial competition" and other adverse effects also would ensue.4 Others seemed resigned to eventual deregulation, but argued for further delay. "Capital liberalization will be inevitable in the long run," commented, for instance, Toyota's Kamiya Shbtarb. "However. . . the slower the progress of liberalization, the better it will be for the Uapanese autombile] industry."5 It is true that, even before 1970, a growing number of influential Japanese corporations began to press their own government to deregulate capital flows. These firms largely were motivated by concern over foreign retaliation for local restrictions, or because they perceived individual benefits from joining with foreign capital in the domestic Japanese market. Nonetheless, opposition to rapid capital decontrol persisted in many quarters of Japanese industry. METHODS The Japanese government first took concrete steps to modify capital controls in the late 1960s, but initial measures created relatively little substantive change.6 In the first stage of the capital-liberalization program, which took effect from 1 July 1967, for example, modified rules provided automatic government approval for up to 100 percent foreign direct investment to establish new corporations in 17 industries, and for up to 50 percent FDI in an additional 33 industries. (See Appendix E.) Yet the approved "industries" were in general highly specific subsets of commonly defined industry categories, and included many fields of business-including soy sauce, wigs, and geta (traditional Japanese shoes)-which the foreign investor would have little interest in entering. FDI to establish new companies in all other industries remained subject to prior approval based on stringent

Thi

d

l d df

The Inner Door, 1970-1980 standards. In addition, the government still restricted foreign acquisitions by limiting foreign ownership in existing Japanese corporations to very low levels.' And, shortly after this initial stage of liberalization, MOF explicitly (but informally) advised foreign companies to limit and otherwise control their direct investments in Japan by adhering to what popularly became known as the "Ten Commandments for Foreign Investors."* Further liberalizations of this type followed towards the close of the decade. In 1968, for example, the authorities liberalized technology assistance agreements (TAAs). These accords, which, among other things, enabled foreign corporations to transfer technology to their Japanese subsidiaries, were previously subject to rigorous government review under the FIL if their value exceeded $20,000. Liberalization here meant automatic approval to conclude TAAs up to $50,000 in value, yet the government exempted from this automatic mechanism technologies covering the computer and several other critical technologies, and enacted additional measures to prevent foreign companies from gaining substantial technological advantage over domestic rivals.9 Two more rounds of capital liberalization followed in March 1969 and September 1970, yet the government still applied strict controls over virtually all industries in which foreign businesses actively sought to invest. Only from the early 1970s did the government undertake significant FDI decontrol measures. The first such move came in April 1971, when the authorities included the automobile and 5 related industries under the automatic-approval system for up to 50 percent FDI in new corporations, and 4 months later declared a "final," round-4 capital liberalization which provided for automatic approval of up to similar levels of foreign investment in newly established companies in all but 7 specified industries.10 The government took a major new step in May 1973, when it announced that foreign investment would receive automatic approval for up to 100 percent FDI in new corporations in all but 22 industries. Also included under the 1973 changes-dubbed "complete liberalizationy' (kanzen jiyiika) by some Japanese observers-was 'modification of official restrictions on foreign acquisitions. Specifically,:foreigners now could legally acquire

Thi

d

l d df

The Inner Door, 1970-1980

existing Japanese companies-provided the target company agreed and that the acquisition did not fall within 22 specified industries. And finally, in December 1980, the government abolished the Foreign Investment Law together with the Foreign Investment Deliberation Council. Thereafter, the authorities stipulated that foreign investors only had to notify the government rather than seek official approval prior to each direct investment, and removed the formal condition that foreign acquisitions could take place only with the agreement of the target Japanese company. Residual FDI controls originally contained in the 1950 FIL now were incorporated into the government's newly revised foieign-exchange legislation, the 1980 FECL. (See Appendix F.) Despite these important measures to relax public FDI regulations, however, the government retained substantial powers to limit such investment throughout the 1970s. First, the authorities regulated foreign investment to establish new corporations in a broad range of industries potentially attractive to foreigners until the sweeping liberalization of May 1973. Second, the authorities continued to restrict FDI in 22 industries even after the 1973 deregulation. Seventeen of these industries-which included, among others, the manufacture of computers, integrated circuits, pharmaceuticals, and precision electronic machines-were placed on a separate, delayed timetable, generally to give domestic firms more time to increase their competitive strength before foreign companies could compete as direct investors in the local market. Not until April 1976 were all of these 17fields fully liberalized. Third, the government still retained specific FDI controls in mining, petroleum refining, leather manufacturing, and agriculture, fishery and forestry even after the end of the 1976 timetable. Fourth, and perhaps most important, the authorities throughout the 1970s enforced strict limits in the critically important area of foreign acquisitions. In this category of foreign investment-one historically favored by American multinationals, particularly as a means rapidly and effectively to enter complex overseas markets such as Japan's-the government continued to prevent any single foreign investor from acquiring 10 percent or more of the stock in an existing Japanese corporation without the explicit consent of the target company.ll

Thi

d

l d df

The Inner Door, 1970-1980

Nor did public controls end there. At the same time that officials modified existing FDI regulations, for example, they took new steps, which they termed "countermeasures" (taisaku), to limit the actual effect of their capital deregulation policies. These countermeasures included stricter application of the Anti-Monopoly Law to limit the transfer from foreign parent to local subsidiary of technologies not available to Japanese competitors. These measures also included revision of the Commercial Code, such as the 1966 change which facilitated the strengthening of keiretsu and other domestic business groups by making it easier for Japanese corporations to issue new shares to third parties (dai sansha wariate) of their choice.12 In addition, the government continued to enforce numerous and often highly detailed industry-specific measures which further limited potential foreign investment.13 And finally, above and beyond these specific measures, throughout the 1970s officials retained under the FIL the overall power to prevent inward direct investment which it deemed might have an "adverse effect" on the "rehabilitation" of the Japanese economy.14 Despite these restrictions, however, in comparative terms the government's progressive removal of numerous public controls over inward direct investment during the 1970s marked a watershed in the history of Japanese public regulation over foreign investment. Although the authorities retained both general and specific powers to block FDI in many fields throughout the Inner Door era, official policy had not been so liberal since the 1920s. At the same time that formal, public investment controls eased, however, restrictions imposed directly by the Japanese private sector became increasingly important instruments for deterring foreign investment. Sectors of the business community purposefully adopted some of these restrictions in an effort to limit potential inroads by foreign multinationals, and so partially compensated for the lifting of official controls. Numerous Japanese corporations that belonged to major keiretsu industrial groups, for example, took advantage of the 1966 changes in the Commercial Code and other developments to tighten their defenses against foreign companies. Toyota's actions are a case in point. Foreseeing the inevitable advance of capital liberalization, Toyota from the late 1960s initiated

Thi

d

l d df

The Inner Door, 1970-1980

FIGURE12 Increasing Concentration of Intra-Keiwtnr Shareholdings,

Ezs-

cou-

poqrnaah

Sou= K n ' w no (Record on kcimru), 1974 edition, aa cited in Wakaahima Shaza, Kabushiki no mochiai to kigybha (Mutual shvcholding and burinem law), p 47.

swaps of some of its own shares for those of numerous suppliers and other associated firms in its same keiretsu. By increasing these intercorporate shareholdings, Toyota keiretsu members bound together still more tightly their business relationships, and thereby hoped to render foreign acquisition of significant stakes in their respective companies a still more difficult task.15 Other major business groups pursued similar strategies to further memtheir "ka'wtsu-ization" (keimtnrka). Indeed, from the mid-1960~~ bers of the Mitsubishi, Mitsui, Sumitomo, and other large keiwtsu organizations progressively increased the level of inter-corporate shareholdings within their groups to create what were euphemistically called "stable shareholding" (antei kabunusbi) blocks designed to ward off potential foreign acquirers. 'With [capital] liberalization in the background," one authoritative Japanese observer explained, "business created 'stable shareholding' [blocks] on a large scale to prevent takeovers by foreign capital. Cross-shareholding," this critic

Thi

d

l d df

The Inner Door, 1970-1980

went on, "was the key weapony' employed to create such blocks.16 Largely as a result, intra-keiretsu shareholding increased dramatically in the years preceding substantive capital liberalization measures. (See Figure 12.) This process tightened ownership relations between the already-complex networks of firms within each major group. (See Figure 13 for the major Mitsubishi group members as of 1986.) Japanese firms took other measures as well to limit potential foreign influence over domestic corporations through increased direct investment. Again turning to the example of Toyota, that company in the late 1960s wrote into its corporate charter an article designed explicitly to exclude non-Japanese citizens from its board: "Directors and auditors," Article 17 of Toyota's amended charter stated, "shall be limited to those possessing Japanese nationality."17 That article, though challenged in Japanese courts, was upheld in 1971. Other companies contemplated employee stockholding and other schemes to limit the potential advance of the foreign investor. In addition to these measures newly adopted by Japanese business to counter the foreign capital threat, numerous other factors long present in the Japanese business environment also effectively retarded FDI inflows, even after the elimination or modification of many public restrictions. To establish a new manufacturing plant, for instance, the prospective foreign entrant had to contend with a range of daunting challenges. The high cost of land, to cite one example, raised considerably the required level of initial investment. Yet even a willingness to pay the requisite price did not always guarantee satisfaction, for many categories of industrial activity required specific types of locations already in short supply in Japan. Hiring talented managers and workers also remained a major challenge in a country where many in the labor force preferred to work for nativecontrolled companies, and where entering the ranks of newly established firms-Japanese or foreign-often was viewed as highly risky. Peculiarities in Japanese distribution systems posed further obstacles to foreign investors, even if they could bear the high cost of land and other major start-up expenses. And, even if a foreign company managed to overcome these and other initial obstacles, ccsuccess'7-if it came at all-often remained largely dependent on the difficult and

Thi

d

l d df

FIGURE13 Principal Members of the Mitsubishi Keirestu, as of 1986

a hlitsubishi Paper Milla

Chukyo Bottlinp Chemical

(;as Chemical hlitrubishi I'etnwhemical

Nitto Kako Taiyo Sanm Toyo Carbon Nippun bgnthelic Lkmical Nippon Kawi Chemical Kawasaki Kasei Chem~cals Teikuku Kako

Slitsubishi Chemical Uihon K e n l a ihizuki Electric codemha Co.

Canamwa

.litsubishi Shindnh dioubishi Cable lnds.

ukai Chemical Ind.

n Zenith Ryoko Concrete

'Mitsubishi Petroleum Dev.

P.S. CanCrete

*Mihubili Research Institute

'Mitsubishi Atomic Power In& Diamond Luv

Source: Dodwell Marking Consultants, Indrcmial Gwup in Japan (Dodwell: Tokyo, 1986), 7th edition, p 48, reprinted he= with the permission of Dodwell.

Thi

d

l d df

The Inner Door, 1970-1980 time-consuming task of building trustworthy business relationships in a nation where such relationships have always been vitally important. In sum, foreign investors faced major restrictions in Japan throughout the 1970s. It is true that many formal government controls over inward direct investment were modified significantly or even abolished during this decade. Yet, at the same time, informal business practices and other private-sector arrangements continued to limit FDI. Although these practices and arrangements could not provide the same degree of protection achieved by government measures, they still posed significant obstacles to the entry and development even of many highly competitive and determined American multinationals.

A M E R I C A N M U L T I N A T I O N A L STRATEGIES DOW CHEMICAL Founded in 1897, Dow became a preeminent American manufacturer of chemicals in the twentieth century. The company, based in Midland, Michigan, developed before World War I1 as a producer of bulk chemicals for the rubber, textile, pharmaceutical, and other industries.18 The firm diversified into a wide range of organic and inorganic chemicals in the postwar era, yet maintained a commanding position in the manufacture of such old-line products as caustic soda and chlorine, in which it led all competitors throughout the postwar era.19 Rapid postwar growth brought Dow into the top ranks of the nation's industrial companies: Dow's position in the U.S. chemical industry, already number 4 in terms of sales in 1956, moved to second position behind only DuPont in the 1970s, by which time Dow operated in the upper reaches of the Fortune 500.20 Although Dow expanded quickly in the U.S. market, it was only in the 1960s that it embarked on a strategy of rapid expansion abroad. Under the leadership of Benjamin Branch from 1959, a newly aggressive Dow Chemical International spearheaded the company's concerted buildup of overseas operations through foreign

Thi

d

l d df

The Inner Door, 1970-1980

direct investments. That buildup began in Western Europe in the early 1960s, but had spread to encompass major manufacturing and other types of direct investments on five continents by the early 1970~.~l In postwar Japan, Dow found a relatively weak and inefficient chemical industry. Although Japanese chemical ~roducershad achieved major advances by the 1930s, critical research and development projects were delayed in subsequent years due to the pressing demands of World War 11.22 For this and other reasons, Japan's chemical firms lagged considerably behind their overseas competitors in the manufacture of a wide range of chemical products throughout most of the postwar period.23 Foreign chemical companies naturally were attracted to the postwar Japanese market, but government restrictions sharply limited their direct participation in the economy. "The basic policy of the Japanese Government," wrote a correspondent for Nihon keizdi shinbun as late as 1968, for example, was "to restrict the inroads of foreign enterprises . . . for protecting and fostering the domestic chemical industry."24 To restrict-but not completely ban-was the preferred policy, for the authorities had to permit a minimum amount of foreign investment in order to gain access to technologies the local chemical industry sought from overseas competitors but could not otherwise obtain. By the late 1960s, that policy had encouraged foreign companies to establish with domestic capital dozens of joint ventures-including Mitsubishi Monsanto Chemical, Nippon Hoechst, and Teijin Hercules, to name just a few-in which the Japanese partner generally held an equal or controlling interest.25(See Figure 14.) Technology transfer from the overseas partner was generally an obligatory condition for approval under the Foreign Investment Law.26 Dow conformed to this general pattern of foreign chemical investors in postwar Japan.27Although Dow was not as aggressive in foreign markets in the early postwar years as some of its American and European competitors, after the war the company did negotiate an equal-partnership joint venture with Asahi Chemical Company which initially produced plastic nets for the Japanese fishing industry. 'We will furnish the capital. You furnish the manufacturing

Thi

d

l d df

FIGURE 14 Japanese-Foreign Joint Ventures in the Postwar Japanese Chemical Industry, as of end of 1967 Joint Venture

Foreign Flrm

Nlhon Tokutsu N6ySu Soh6

Bayer

Japanese ~ l r m

Nlhon Atlantic Sumltomo Chemlcal

U.S. Rubber

I Nlssan Conoco I T6y6 Kortru 1

Contlnrntal 011

1

T6v6 Carbon

Dow Corning ~ 6 y 6Rayon

A.A. Chrmlcal S h k Drnk6 P~IIIIDS

Yawata Chrmlcrl

Petrolrum

1

T r u ~ s a k Yuka l

Nlppon Light M.tr1. atc.

8. F. Goodrich

A8Ihl Chembal tndiIitly I

b

Ub. lnduatrlrr

Mrrbon Chrmlcrl Trljln Horculrr

Hrrculrr Chrvron Chrmkal

tmwn Prtrochrmlcrlr

F u ~ k a w aChrmlcrl

Source 7be Japn Eraomk Jourm&26 November 1968.

Thi

d

l d df

Standard 011 (Indlma)

The Inner Door, 1970-1980

know-how," Asahi suggested to D0w.2~The Japanese government approved the arrangement, and Asahi-Dow Limited was established in 1952. Dow Chemical International then set up a branch office in Tokyo the following year to coordinate a modest import business.29 The regulatory environment for foreign investment in the chemical industry improved after the government inaugurated its capital liberalization program. In 1967, the authorities announced that up-toequal-partnership joint ventures between foreign and Japanese companies to produce a wide range of chemical and allied products in Japan would henceforth receive automatic approval.30 However, the persistence of controls barring majority foreign-owned chemical firms in Japan and other official restrictions would force American chemical firms to move cautiously, a Japanese daily accurately predicted in 1968, at least until the capital liberalization program was further advanced: Chemical enterprises in the United States are likely to adopt a slow-butsteady policy for advancing into the Japanese market in view of the basic policy of the Japanese Government . . . . [They] are waiting for chances for more aggressive inroads in the future. . . . This strategy. . . is somewhat different from the aggressive program they adopted for the European market on the basis of large-scale investments from the start. It appears that they plan to advance into Japan progressively step by step, pending [further] liberalization of capital transa~tions.~l

Official liberalization did indeed continue. Thus, in 1969, for example, new categories of plastics manufacture were added to the automatic approval list for up to 50-50 foreign-Japanese joint ventures.j2 And finally, in May 1973, the government announced that the Japanese chemical industry was "fully liberalized" for foreign direct investment.33 The culmination of this official liberalization process encouraged Dow to rethink its strategy for Japan. Almost immediately after the May 1973 government announcement, Dow notified MITI that it was interested in establishing a wholly owned subsidiary in Japan, and in manufacturing locally chemical products, including caustic soda and chlorine.34 Dow, with official approval, then established

Thi

d

l d df

The Inner Door, 1970-1980

Dow Chemical Japan in 1974, its first wholly owned Japanese subsidiary.35 Eager to take advantage of possible opportunities in this newly deregulated environment, Dow also undertook a major study that same year to assess the economic feasibility of producing caustic soda, chlorine, and other chemical products in Japan.36 Finally, in July 1975, Dow's Japanese subsidiary applied to MITI for permission to amend its articles of incorporation so that it could legally manufacture these chemicals.37 News of Dow's interest in producing caustic soda in Japan did not meet with an enthusiastic response from the domestic caustic-soda industry. As early as mid-1974-well before Dow had even completed its feasibility study-Japanese caustic-soda companies already had begun to protest loudly the rumored plans of the American company. The industry, at least in public, based its protests on two factors.38 First, the industry explained, there was already significant overcapacity in the domestic soda market. The industry further predicted that demand would grow only slowly, and that Dow's proposed operations would therefore provide still more redundant capacity39 Second, Japanese caustic-soda producers protested on grounds that their forced conversion to new production methods made them unusually vulnerable to a foreign entrant such as Dow. This conversion stemmed from a highly publicized case of industrial pollution in the 1960s. Following reports that Japanese chemical maker Chisso had caused mercury poisoning among inhabitants in the village of Minamata by producing caustic soda through a method using mercury, the government ordered in the early 1970s that all chemical companies in Japan convert to new production methods that did not use mercury.40 This conversion would be a costly and time-consuming process, the industry pointed out, and so would provide Dow-which had already developed an advanced, cost-efficient method for producing caustic soda without using mercury-an unfair advantage. Dow responded forcefully to these two industry claims, but failed to alter the position of these Japanese chemical companies. To the issue of over-capacity, the American company replied that it foresaw a steady increase in Japanese demand for caustic soda, and that, at any rate, a Dow plant could not start to operate for a number of years.

Thi

d

l d df

The Inner Door, 1970-1980

Even then, Dow officials argued, their output would equal only 8 percent of total Japanese demand. Dow largely based its market projections on the growth of Japanese demand for caustic soda over the previous decade, which exceeded 10 percent per annum, together with reports indicating that such growth would continue at roughly comparable levels in future years.41Japanese industry spokesmen, on the other hand, based their over-capacity predictions on a 4.5-percent annual gowth rate. This latter estimate, however, was doubted not only in Dow's public statements and published media reports, but also in private communications from Tokyo-based American diplomats to the U.S. State Department. "Opponents of Dow application are following traditional course," one Japan-based U.S. official cabled Washington in 1975, "presenting worst-case scenarios of their own prospects for press and MITI con~umption."~~ And to the issue of industry conversion, the U.S. firm replied that, even if it elected to set up a local factory, it would not be ready to produce caustic soda until well after the scheduled 1978 completion of the conversion pr0gram.4~Moreover, Dow's local officials continued, the Japanese government was preparing to offer low-interest loans, subsidies, accelerated depreciation, and other forms of assistance to Japanese soda makers to ease the financial burden of the conversion.44 In addition, the U.S. firm pointed out that a large part of its output from any Japanese operation would merely replace imports from its overseas facilities.45 And, finally, Dow management claimed that any caustic-soda plant it did elect to establish would serve the overall national interest of Japan in part because Dow would contribute to an effective solution of the mercury problem.46 Left unstated in the domestic protests, however, was a critical third factor, which figured heavily in the industry's opposition: the superior efficiency of the American company's proposed chemical plant. Domestic firms were particularly worried by Dow's public statements that any caustic-soda plants it did build in Japan would be on a relatively large scale. Because the manufacture of caustic soda is subject to clear-cut economies of scale, and because the Japanese industry was composed of a large number of small, relatively inefficient

Thi

d

l d df

The Inner Door, 1970-1980

~lants-53 in all, owned by a total of 37 different Japanese firmsDow's entry would pose a major threat to these firms' competitive position in the domestic caustic-soda market.47 Dow's scale advantages, taken together with its superior technologies, evidently caused great concern among the American company's Japanese competitors-whose relative inefficiency was reflected in Japanese causticsoda prices which, in 1975, stood roughly 10 percent higher than world prices.48 These competitors were "quite fractured" and lacked "world-class facilities," in the judgment of Dow Japan's Director of Business Development at the time. 'We were a threat," this manager concluded in retrospect, "because what we proposed to do was install a world-scale, modern facility which was, process-wise and economics-wise, superior. They therefore feared us a great dea1."49 For these and other reasons, the Japanese industry worked strenuously to prevent Dow from establishing a caustic-soda plant. Domestic producers, organized into the Japan Caustic Soda Industry Association (JCSIA), brought their protests directly to the offices of MITI's Basic Industries Bureau, to the floor of the National Diet, and to the media. Reflecting on the U.S. firm's continued efforts to seek permission to invest despite the vehement and insistent opposition of the local industry, for example, JCSIA Managing Director Kashima Kaname told one journalist that "Dow's behavior in Japan is provocative and irritating to Japanese businessmen who respect mutual reliance and trust."5O When word leaked out that Dow was considering a site for its proposed operations in Tomakomai, on the northern island of Hokkaido, the JCSIA appealed directly to the local authorities there to prevent Dow from acquiring the site. These authorities, who controlled much of the land in the industrial park site Dow proposed to acquire, heeded industry protests by ruling that Dow would not be allowed to purchase the land. This move particularly disappointed Dow, for its proposed factory required a manufacturing site on the coast to economize on high transportation costs, and finding alternative locations would prove no easy task. The Governor of Hokkaido, together with the local Hokkaido legislative assembly, then joined the industry in lobbying MITI to keep Dow out.51This

Thi

d

l d df

The Inner Door, 1970-1980

series of events led one chemical industry analyst in April 1974 to speculate that perhaps Japan was not yet as open to foreign business as the rhetoric of the capital-liberalization program had suggested: A year ago next month the Japanese government rounded out its capital liberalization program with a flourish by opening virtually all of Japan's industry to entry by wholly foreign-owned production firms without prior government screening. But official clearance of an inward investment proposaI is only the first layer of the onion. The tightly knit structure of Japanese business, in which consensus has always been more important than contracts, can be another formidable barrier to newcomers. Dow Chemical's brush with the Japan [Caustic] Soda Industry Association . . . is rapidly becoming an exemplary case.52

These pressures placed officials at MITI's Basic Industries Bureau, the government office ultimately charged with deciding on Dow's application, in a most embarrassing position. Naturally supportive of the domestic industry yet bound by international pledges to liberalize capital flows, MITI stalled for time by exercising its right to review for 3 months all proposed foreign investments that might prove harmful to the national economy. After deliberating for the full 3-month ~ e r i o d ,and following extensive consultations with Dow and the industry association, MITI told Dow in October 1975 that it would not then authorize Dow to build caustic-soda facilities in the country, and asked that the American company therefore withdraw its application to modify Dow Japan's articles of incorporation.53 'We simply cannot ignore the opposition," MITI explained in defense of its action.54 "It is with considerable reluctance that we accept MITI's request," replied Dow Chemical Japan President Robert Baker in a statement to the press. 'Withdrawing the soda project," Baker then added, "does not mean that our interest in the production of chlorine and caustic soda in Japan has diminished."55 At the same time, however, MITI recognized that its continued refusal to deny the Dow request could prove extremely costly in international terms, for the capital-liberalization pledges bound MITI to permit unfettered foreign direct chemical investments from mid1973. MITI therefore asked Dow immediately to resubmit its applica-

Thi

d

l d df

The Inner Door, 1970-1980

tion for the soda plant, thereby giving MITI more time to try to convince the domestic industry to alter its stance. Dow complied with MITI's request, and Baker vowed to continue the fight: We intend to pursue the new application for chlorine and caustic soda production with vigor, because we believe that our customers will be best served by our manufacturing in Japan and because we are confident that our participation in the soda industry will ultimately be seen as beneficial to the country.56

Finally, after further negotiation with the industry-and with full recognition that it had lost much of its earlier formal power to directly stem the flow of foreign capital into the Japanese economy-MITI relented and approved the Dow application in early 1976.57 News of the official approval sparked still greater Dow efforts to move forward with its proposed caustic-soda project. Although Japanese competitors had successfully blocked acquisition of the Hokkaido site, the U.S. company now planned to examine an industrial plant site at Hario on the southern island of Kyushu, a location first suggested by the local authorities in Nagasaki prefecture. Dow also continued its campaign by discussing its proposal at length with representatives from MITI and the Japanese industry. Dow Japan President Baker, who now promised that the proposed facilities would not start to produce caustic soda until the mid-198OYs,appealed to Japan's own self interests: "It is an antiquated industry," Baker said of the domestic producers, "needing modernization to benefit downstream users that are becoming noncompetitive internationally"58 Confronted with MITI's official approval and Dow's latest moves, domestic soda makers now redoubled their efforts to bar Dow's entry. First, the industry association pressured real-estate agents and others to prevent Dow from acquiring a suitable piece of land for its proposed plant site. This pressure included demands that the Nagasaki prefectural government withdraw its invitation for Dow to consider the Hario site.59 And, second, the industry increased domestic capacity for caustic-soda production. This move, despite previous over-capacity-a factor which the JCSIA had repeatedly cited to dis-

Thi

d

l d df

The Inner Door, 1970-1980

courage Dow's entry in the first place-would make Japan still less attractive to Dow.~O These actions apparently paid off, for by the end of the 1970s, Dow-despite several years of strenuous efforts-finally had decided to abandon its proposed caustic soda manufacturing project.61 The opposition of Japanese competitors clearly had played a major role in the company's final determination. That opposition had led to Dow's inability to acquire a suitable plant site, together with a much less attractive economic environment now that domestic companies had increased their own manufacturing capacity. Moreover, even if Dow did decide to go ahead with the investment, it still worried about the continued hostility of the local industry.62 In subsequent years, Dow managed to foster a growing but limited chemical business in Japan. That business included imports largely of bulk chemicals, together with local production mainly of specialty products.63 Dow's first direct investment in Japan, the longstanding joint venture with Asahi Chemical, however, would not survive much past the start of the succeeding decade. Major disagreements between the parent companies had by then arisen over technology and other matters, leading Dow to withdraw from the joint venture in 1982. What remnants of Asahi-Dow's business the American company could secure as part of the divorce settlement with Asahi were then transferred to a new Dow subsidiary, Dow K a k ~ . ~ ~ MOTOROLA Motorola developed from a modest-sized producer of radio and communications equipment before World War I1 into a major manufacturer of semiconductors and other high-technology industrial electronics in the postwar era. Founded in 1928 by Paul Galvin as the Galvin Manufacturing Corporation, the Illinois-based firm initially made car radios under the brand name "Motorola," an amalgam of "motor" and ccvictrola'ylater (1947) adopted as the company name. Motorola manufactured walkie-talkies during the war, and subsequently expanded into television and phonograph production as well. The firm chose to move in an important new direction in the early 1960s, when the management team headed by newly appointed

Thi

d

l d df

The Inner Door, 1970-1980

President Robert Galvin, son of the founder, decided to shift the strategic focus from consumer to industrial electronics.65 Within little more than a decade, Motorola had become a leading producer of semiconductors, telecommunications equipment, and other advanced electronics products.66 In semiconductors, for example, Motorola by the 1970s ranked second only to Texas Instruments in worldwide sales.67 Foreign direct investment became a prominent feature of Motorola's international strategy in the 1960s. Intent on expanding abroad but reluctant to license its technologies to foreign competitors, the company began to participate in overseas markets through FDI as well as exports. Motorola set up its first foreign plant in Canada in 1958, followed by direct investments in Europe in the early 1 9 6 0 ~Foreign .~~ plants specifically to produce semiconductors soon followed. Increasing overseas sales and other factors led Motorola to establish its first offshore semiconductor production facility in France in 1967, followed by Motorola's first Asian plant-in South Korea-later that year. By the early 1970s, the American electronics firm also had established semiconductor assembly or manufacturing plants in the United Kingdom, West Germany, Scotland, Mexico, Malaysia, the Philippines, and Hong K ~ n g . ~ ~ These overseas investments the company controlled as wholly owned subsidiaries, for Motorola strictly maintained a policy of 100-percent ownership of its foreign plants. The company had adopted this policy after disappointing experiences with joint ventures in the U.S. market in earlier years, and to avoid the pitfalls of multiple ownership in complex and rapidly changing industries such as electronics.70 As the Motorola manager who first ran the company's South Korean plant put it, "We studiously avoided" joint ventures in foreign markets.71 Motorola's wholly owned foreign operations helped the company capture substantial shares of numerous overseas markets, including a sizable 8 percent to 9 percent of the European semiconductor market during the 1 9 7 0 ~ . ~ ~ Motorola's experiences seeking direct entry into the Japanese semiconductor market, however, stood in marked contrast to its experiences in these other countries. Overall Japanese consumption of

Thi

d

l d df

The Inner Door, 1970-1980 integrated circuits had increased steadily during the 1960s, and stood roughly equivalent to total consumption for the entire European Economic Community by 1974.73 This rapid gowth, as previously described, had caught the attention of Texas Instruments in the early days of the industry. Soon, other U.S. semiconductor companies also began to explore the potentialities of the Japanese market. In contrast to TI'S exceptional entry based on its control of the seminal Kilby patents, however, other foreign semiconductor firms had far less success penetrating the Japanese market during the years of strict public regulation. In addition to tariff and non-tariff barriers, which sharply limited semiconductor imports, public controls barred all foreign semiconductor companies (save TI) from setting up wholly owned manufacturing subsidiaries or directly investing in existing Japanese firms. Foreign participation in newly established companies also was discouraged.74 These public regulations, first instituted in the 1950s, continued even after the third round of capital liberalization in late 1970.75So effective were these controls that, Texas Instruments aside, not one U.S. (or other foreign) firm managed to set up a semiconductor manufacturing operation on the Japanese mainland before the 1970s. Fairchild and Signetics numbered among the U.S. companies interested in establishing local operations, yet were discouraged by Japanese rules from undertaking such investments.T6 Japanese opposition also kept Motorola at bay. The American company had managed to sell semiconductors and other electronics products to Japanese companies through a Tokyo liaison office it had established in 1960, but volume remained small mainly because-as Motorola managers were told on countless occasions-"To sell in Japan, you must make in Japan."77Robert Galvin and other top company representatives therefore traveled to Tokyo on numerous occasions from the early 1960s to examine the local electronics market and assess the climate for foreign direct manufacturing investment. Yet, on each such trip, Galvin and other company representatives found themselves "deflected" in their conversations with local business and government leaders from pressing the investment issue.78 Unlike other countries Motorola invested in during this era, accord-

Thi

d

l d df

The Inner Door, 1970-1980 ing to Galvin, in Japan "every signal was discouraging."79 Nor did these signals mislead: In 1965, for example, U.S. Ambassador Edwin Reischauer reported in a confidential cable to the State Department "growing Uapanese] industry- alarm and MITI concern caused by attempts [of] Motorola to penetrate Japanese market on same basis as Yet, when Galvin went to speak with U.S. Embassy officials about Japanese investment restrictions, he was offered sympathy but no help: "That's the way it is," American diplomats explained to G a l ~ i n . ~ l Despite local controls, however, by the late 1960s the attractions of operating in Japan had convinced Motorola to press for Japanese permission to set up a local semiconductor plant. In addition to competitor TI'S apparent success, Motorola also was motivated by the prospect of supplying (and competing against) a rapidly growing Japanese electronics industry, together with the opportunity to take advantage of cheaper manufacturing costs in Japan-which, Motorola believed, could lead to exports from a Japanese base as well as increased local semiconductor sales.82 The project team dispatched by the U.S. parent to seek such entry confronted the same restrictions that previously had frustrated other foreign semiconductor firms. Controlling neither the Kilby patents nor other similarly vital technologies sought by Japanese competitors, the American company found MITI's attitude towards a possible investment scarcely encouraging.83 As a result, Motorola did not even bother filing a formal application to establish a manufacturing plant.84 Unable to overcome local investment barriers, the American multinational instead elected to set up in 1968 Motorola Semiconductors Japan, Ltd., an office devoted exclusively to sales of semiconductors in the local market, and to postpone a direct manufacturing investment in Japan until local controls had eased. The company's failure in the pre-capital lib- . eralization era to establish an operation in Japan was not, at least in the minds of current and former Motorola officials involved in the attempt, for lack of effort: "In terms of time and managerial resources," according to thenvice-president and General Manager Lester Hogan of the Semiconductor Division, for example, "we invested every bit as much effort in trying to establish an investment in Japan as we ever did in Western E u r ~ p e . " ~ ~

Thi

d

l d df

The Inner Door, 1970-1980

Changes in Japanese public policies in the early 1970s prompted new responses by Motorola and other foreign semiconductor companies. For one thing, the government announced that, as part of the fourth round of capital liberalization to take effect in August 1971, foreign semiconductor firms would receive automatic approval to establish up-to-equal-partnership joint ventures with Japanese companies86 In 1972, however, officials moved to extend Japanese controls over foreign semiconductor investment to the southern island of Okinawa following its reversion from the United States that May. The impact of the Okinawa reversion on the strategies of two major U.S. semiconductor companies proved substantial and swift. American firms barred direct entry to the market on the Japanese mainland before the 1971 capital liberalization could gamble on access to this market after 1972 by investing in Okinawa, where the regulatory environment was not as severe. Permission to directly invest on that island, under the occupation of the United States since World War 11, was regulated by the Foreign Investment Council of the Ryukyu (Okinawa) government. Fairchild already had taken such a gamble in 1969 by establishing a wholly owned plant on Okinawa to assemble discrete components and integrated circuits, followed by a National Semiconductor direct investment shortly before reversion.87 Japanese officials, however, effectively thwarted the Fairchild and National entry attempts once Japan had regained sovereignty over Okinawa. Forced by the government to sell off at least half its equity to a Japanese company in order to continue legal operation of its semiconductor plant after reversion-"If you want to do business in Japan, you have to have a Japanese partner," as one American manager summed up' the new regulatory situation his company now faced-Fairchild in 1972 decided to allow Japanese-owned TDK Electronics to acquire 50 percent of the U.S. company's Okinawan operation. However, that joint venture-like many other forced ventures between foreign and Japanese capital motivated by government regulations-experienced numerous problems in subsequent years, and the two sides finally had liquidated the business by 1977. National Semiconductor did not fare much better. On the very eve of reversion, National searched in vain for a suitable Japanese partner

Thi

d

l d df

The Inner Door, 1970-1980

for its Okinawan plant. 'We are looking for a wife to avoid a forced marriage," commented one National manager in Tokyo as his firm pursued this effort. Yet apparently no such partner could be found, and National thus elected to pull out of Japan altogether shortly thereafter.88 In contrast to the Fairchild and National strategies for gaining access through Okinawa, Motorola sought direct entry by taking full advantage of the Japanese government's modified controls on foreign semiconductor investment contained in the fourth round of capital liberalization. This partial liberalization, as noted above, granted foreign semiconductor companies the right to establish up to equalpartnership joint ventures with domestic capital, although regulations still prohibited Motorola's preferred overseas entry vehicle-the wholly foreign-owned subsidiary. Like Fairchild and National, Motorola therefore found itself obliged to seek a local partner for its semiconductor .business despite its own best judgment about the most promising means of direct entry: "The decision to joint venture was driven by government regulations," according to Stephen Levy, a senior Motorola manager directly involved in Motorola's attempts to invest in Japan from the 1960s. "Clearly, we would have preferred to do it on our own."89 Thus, for the first time in its history-and in contrast to every other overseas market where it had directly invested-Motorola opted to share ownership of an overseas semiconductor plant with another company. Choosing a suitable joint-venture partner presented Motorola with an additional challenge. In response to the government's announced intention partially to decontrol capital inflows in the semiconductor industry, Motorola Vice-president William Weisz traveled to Tokyo in April 1971-4 months before the start of the newly proclaimed investment policy-to seek details on regulatory changes. MITI officials confirmed the soon-to-be-enactedpolicy allowing joint ventures, but then handed Weisz a list of ccsuggested"Japanese partners the Ministry strongly advised Motorola to consider. The American company hesitated to follow MITI's advice, however, for the list contained the names of all the major Japanese electronics firms. These firms the American company feared could become dangerous rivals

Thi

d

l d df

The Inner Door, 1970-1980

both within Japan and, eventually, abroad-particularly if Motorola were to share its proprietary technology with any of these large and influential ~artners.9~ Much to MITI's consternation, Motorola therefore chose to forge an investment alliance with a smaller Japanese company which did not pose the same long-term competitive threat. After an initial survey of local candidates, Motorola identified Alps Electric Company, a producer of automotive products and passive components, as its top choice. In addition to its size, Alps attracted the interest of the American company for at least two more reasons. First, Alps had never engaged in the semiconductor business, and therefore posed a minimal threat that it might turn into a Motorola rival in the near future. Second, and perhaps more important, Alps and Motorola in 1967 had established a joint venture in Japan to manufacture tape decks and car radios for export to the United States marketed under the Motorola label.91 The two partners had developed considerable trust and goodwill through this venture, which made a combination with Alps still more appealing to Motorola.92 After lengthy discussions, the two firms established in 1973 AlpsMotorola Semiconductor, Ltd. (AMSK), an equal-partnership joint venture which the American company hoped to turn into a fullfledged, vertically integrated semiconductor producer in Japan which would make a full product line for export as well as sales in the local market. The two parent firms together would purchase a large tract of land in Japan, and construct extensive facilities on the site to achieve their goals. "It was," recalled George Needham, a Board member of the new Japanese organization, "going to be a big dea1."93 The results of Motorola's new arrangements, however, proved disappointing. The two partners did manage to buy a 50-acre tract of land in Morioka, Iwate prefecture, on the central island of Honshu, and completed construction of the assembly module building on the site in short order. Yet problems quickly developed. For one thing, it soon became clear that Alps lacked the funds adequately to support a sustained development program in the capital-intensive semiconductor industry. The 1973-1974 oil shock and other factors weakened Alps still further, as witnessed by its subsequent decision

Thi

d

l d df

The Inner Door, 1970-1980 to lay off workers for the first time in its history. For another, Motorola erred by adopting overly ambitious goals for its new Japanese venture: It tried far too quickly to produce at AMSK microprocessors and other products whose manufacture Motorola had not yet perfected even at its U.S. plants.94 But perhaps most important, AMSK fell victim to many of the same problems that plagued other combinations between Japanese and foreign capital forced on the overseas partner by local regulations. In the AMSK case, the divergent interests of the two parents proved particularly serious. Alps, for its part, principally sought to produce through the joint venture electronic equipment for its own products and operations, whereas Motorola had larger ambitions including major and rapidly expanding sales to third parties as well as supplies for the two parent companies. In addition, AMSK encountered significant problems associated with the complex task of transfer pricing in the rapidly changing semiconductor industry, together with a relatively slow and cumbersome decision-making process and an apparent clash of personalities between certain Alps and Motorola managers.95 For these and other reasons, Motorola's first attempt at semiconductor manufacturing in Japan ultimately failed. Indeed, AMSK neither met its initial sales objectives nor manufactured a single integrated circuit during its short existence. Indeed, the only non-sales activity of the joint venture involved limited testing of electronic parts at an existing Alps factory in Yokohama taken over by the venture at the time of its founding. Mounting problems led Alps and Motorola to agree on an amicable breakup of AMSK in 1975, just 2 years after its creation. In the termination settlement, Motorola gained control of the venture's ongoing semiconductor business, whereas Alps took over the land and factory, which it later converted to manufacture a new product line. Once again, Motorola found itself in control of (the redesignated) Motorola Semiconductors Japan, Ltd.-but without a semiconductor factory in Japan.96 The failure of the Alps joint venture and other factors temporarily discouraged Motorola, but within three years management once again began to contemplate direct investment. The demise and

Thi

d

l d df

The Inner Door, 1970-1980

breakup of AMSK had left a "bad taste" at Motorola, and reminded many there of the company's generally "troubled experience" seeking to penetrate the Japanese semiconductor market.97 In addition, there had been a change of top management in Motorola's Semiconductor Division just before the joint venture unraveled, which delayed major new decisions in the immediate aftermath of AMSK's liquidation. And finally, Motorola managers hesitated to undertake important new commitments abroad in the years immediately following the 1973-1974 downturn of the semiconductor industry.98 By the late 1970s, however, a steadily expanding list of considerations convinced Motorola to attempt once again to produce semiconductors in Japan. First, the Japanese government had fulfilled its earlier commitment to allow foreign companies from December 1974 to establish wholly owned manufacturing companies in the semiconductor industry-one of the 17 industries subject to delayed timetables after the final round of capital liberalization in early 1973.99 Second, Motorola management became more convinced than ever that significantly improved sales in Japan required local production, in large part due to the "continuous harangue" from Japanese customers that the American firm demonstrate its commitment to the market by manufacturing locally."J0 Third, Japan by now had become the largest semiconductor market in the world outside of the United States. Fourth, and most significantly, top Motorola management had concluded by the end of the 1970s that failure to compete effectively with Japanese producers of semiconductors and other Motorola business lines threatened the very survival of the corporation. To compete effectively, management believed, Motorola would have to directly contest Japanese producers in their home market. Failure to do so, the American firm had concluded, would allow Japanese rivals to maintain what one company official termed domestic "profit sanctuaries" from which they could threaten Motorola's businesses worldwide.10l This still higher priority that Motorola now attached to Japan soon was reflected in the company's decision to rank effective competition with Japan among the corporation's very highest goals.102 Thus, Motorola-still second only to TI in world semiconductor sales yet still without a manufacturing plant in Japan

Thi

d

l d df

The Inner Door, 1970-1980

(or a significant share of the large and rapidly expanding Japanese market)-decided to try once again to establish a direct manufacturing presence.lo3 Despite the removal of most government controls over FDI in the ~ Motorola now semiconductor industry by the late 1 9 7 0 ~however, confronted serious challenges arising from the character and operation of the Japanese business sector. The American company calculated that creation of a new, wholly owned Japanese company from scratch posed too many problems. Human-resource issues figured prominently in Motorola's assessment. Recruitment and training of qualified Japanese managers and engineers posed a major challenge for Motorola in every overseas market where it operated, but the company estimated that the time and other costs required to assemble a quality workforce to run a major manufacturing operation in Japan would be even higher: Many of Japan's best-educated students, it understood, preferred to work for larger companies already well established in the local market rather than for relative newcomers to Japan such as Motorola. Nor would recruiting personnel from competing Japanese firms prove an easy task, Motorola was warned. Motorola also worried about complex local distribution channels, together with its image and trustworthiness in the minds of local customers if it were to enter alone from the start-worries supported by the views of friendly Japanese companies and others, who advised that Motorola not go in alone.104 Additional concerns included the high cost of purchasing land and other assets-particularly in an era of significant yen appreciation-constructing production facilities, and other challenges common to newcomers who seek successfully to manufacture in Japan. Joint venturing with a local company offered a second alternative, but Motorola already had tried this earlier in the decade with little success. Galvin and other top company officials finally settled on acquisition as the best strategy for rapidly and efficiently gaining a local manufacturing presence, but quickly discovered that acquisitions of Japanese companies-particularly by foreign firms-was no easy task. 1°5 Moreover, even if Motorola succeeded in overcoming these investment difficulties and managed to establish a local production facility,

Thi

d

l d df

The Inner Door, 1970-1980

it would have to confront a Japanese industry now far more powerful than during the days of strict public regulation. Indeed, the major domestic players publicly began to express confidence that they could withstand competition from Motorola and other overseas firms, even in the domestic market. "The competitiveness of Japanese semiconductor manufacturers," in the view of, for example, NEC management in 1975-the year immediately following termination of government capital controls in their industry-had "grown so strong that no big foreign competitor will have an easy time cracking the Japanese market.""J6 At about the same time, and presumably for much the same reason, Imamura Yoshinobu, a top manager of Hitachi and a major figure in the Japanese semiconductor industry, declared flatly that "we are no longer 'allergic' to foreign capital."107 The cure for this allergy apparently included increased Japanese cost and technological competitiveness vis-A-vis foreign competitors, together with captive buyer-supplier relationships and other arrangements. Motorola managers agreed with these Japanese assessments, and could not help but note the juxtaposition of capital liberalization in semiconductors and the emergence of a highly competitive Japanese industry: ''By the time the Japanese Government had opened the door," at least in the view of Motorola's Levy, "their industry had already become very powerful, so the opportunities had become much less attracti~e."'~~ In short, private-sector challenges now had replaced public-sector controls. Motorola's search for a suitable acquisition candidate illustrates additional challenges that confronted foreign companies in major industries such as semiconductors which sought to invest in the era of the Inner Door. In addition to seeking an established Japanese semiconductor company with at least some experience in the important area of wafer fabrication, Motorola also sought to identify a local firm that might agree to be acquired, for, even after the planned 1980 abolition of government regulations barring hostile foreign takeovers, such hostile acquisitions were not then (and are not now) part of standard Japanese business practice. Immediately eliminated from the list were the most successful and attractive potential candidatesJapan's major and rapidly developing semiconductor producers-for

Thi

d

l d df

The Inner Door, 1970-1980

these all functioned as members of tightly knit domestic industrial groupings which would resist any foreign investment overtures. Also eliminated were firms with inadequate background, facilities, or experience. From this narrowed field, Motorola managed to identify two possible candidates: the semiconductor subsidiaries of watchmaker Seiko and mechanical-pans producer Tbkb, Inc. A local Motorola intermediary contacted the parent of its first acquisition choice, Seiko, but was told that Seiko was not interested in discussing such an arrangement. Motorola next approached T6k6, Inc., which demonstrated considerably more willingness to entertain the American company's proposal. A leading Japanese producer of switches and coils for radios which had supplied parts to Motorola's communications business for a number of years, Tbkb in the mid-1970s had formed with several other Japanese companies the Aizu-Tbkb Corporation, which specialized in the manufacture of semiconductors and related products. By the end of the decade, however, AizuTbkb had run into considerable trouble: The company could not keep pace with technological developments in the semiconductor industry, products failed to win adequate favor in the market, and, partially as a result, all the founding sponsors save Tbkb, Inc. had pulled out of the venture. Lacking adequate funds to support requisite design, research and development, and other activities at Aizu-Tbka, the Japanese parent in early 1980 had opened talks with MOSTEK, an American semiconductor company which previously had licensed technology to Aizu, in a bid to save the ailing subsidiary. These talks broke down, however, when CEO Harold Gray of United Technologies, which had recently acquired MOSTEK, proved unwilling to risk the purchase of Aizu. Motorola fortuitously had initiated contact with T ~ k bInc., , just after these talks with MOSTEK had begun but just before they had broken down, thereby taking advantage of a "narrow window'' of opportunity to hold talks with Tbkb. Motorola's William Connor and other company officials directly involved with the process considered themselves "incredibly lucky," for they had gotten a foot in the door before Aizu had either combined with another Japanese company or gone bankrupt.109 At last, a Japanese candidate had been found.

Thi

d

l d df

The Inner Door, 1970-1980

Still, acquisition talks with Tak6, 1nc.-a firm eagerly searching for an outside savior of a troubled subsidiary-proved more difficult and time-consuming than Motorola had anticipated. Advised to "go slow" in its negotiations by Japanese businessmen and others experienced in acquiring local companies, Motorola spent months talking to management at T6k6, Inc., and its Aizu subsidiary. To a Japanese company, Motorola was repeatedly told, arranging for the purchase of a subsidiary was like "selling a member of the family," and so the process had to be handled with great delicacy.fl0 In addition, Tbkb indicated deep concern about its reputation in Japan if it were to sell outright and in toto a local subsidiary to a foreign company. The two sides finally came to an agreement in late 1980, but significant complications kept the ultimate success of the acquisition in serious doubt.111 In response to explicit advice from influential Japanese businessmen both within T b k ~ Inc. (including Tbka Chairman and former MITI official Toida Makoto) and elsewhere in domestic business circles about the dangers of an outright acquisition of AizuTbk6, Motorola that October bought from Taka, Inc. just 50 percent of Aizu's equity. The venture would receive technical and other support from Motorola, and would produce metal-oxidesilicon (MOS) integrated circuits in Aizu's manufacturing facilities in northern Honshu. At the same time, Motorola and Taka, Inc. came to an off-the-record understanding-reminiscent, in many important respects, of TI'S arrangement with Sony 12 years earlier-that the American company could buy the remaining 50 percent of Aizu's equity within 3 years, provided that the venture encountered no new major problems and that Tbkb management proved satisfied with Aizu's progress.U2 Yet success was still far from certain, for fully onethird of Aizu's management team was "on loan" from parent T 6 k ~ Inc. at the time of the 1980 deal, and neither the American nor the Japanese parents could be sure that these seconded officials would elect to stay with the subsidiary.fl3 Thus, even after Motorola had concluded its phased arrangement with T6k6, Inc., the ultimate outcome was by no means assured. Finally, after some two decades of efforts, Motorola's direct investment and related activities enabled the company to achieve a rela-

Thi

d

l d df

The Inner Door, 1970-1980

tively substantial presence in the Japanese semiconductor market. In 1982, Motorola exercised its option to buy out the remaining 50 percent of Aizu-Takb, and virtually all the Japanese managers seconded from Tbka, Inc. decided to stay with the subsidiary. Later, in 1986, Motorola-convinced, in the words of Motorola Vice-president Richard Heimlich, that 'We had to have somebody on the inside" to more rapidly penetrate the Japanese electronics market-agreed with Toshiba to establish a joint venture, Tohoku Semiconductor Corporation, to manufacture microprocessor and memory chips in Further Motorola actions finally enabled the company to make still greater progress penetrating the Japanese market, but this progress remained, at least in the estimation of senior Motorola management, "unusually slow" and "very frustrating" compared to experiences in other major overseas markets."5

O T H E R AMERICAN MULTINATIONALS

Dow and Motorola were not the only American multinationals to encounter Japanese investment barriers in the 1970s. The experiences of the three major U.S. automobile companies also provide vivid examples of the impediments that operated both before and after public controls had eased. Rapid development of the postwar Japanese motor-vehicle industry did not go unnoticed in Detroit, although it was no earlier than the late 1950s before top management at any of the Big Three seriously began to consider competition from Japan. Ford apparently caught on first.fi6 "There is a growing Japanese domestic market for automotive products," Ford International stated in an internal report of July 1957. "The Japanese industry is [also] aggressively seeking export markets," the report went on, "and is very likely to achieve a substantial penetration in South Asian markets.""' Ford International's Vice-president spoke in 1964 of "a vigorous, thriving and growing [automobile] industry in Japan," and three years later an internal Ford study concluded: 'We are firmly convinced of the potential threat of Japanese competition in both the domestic U.S. and overseas markets.""* Chrysler and General Motors were slower to appreciate the dimensions of the Japanese chal-

Thi

d

l d df

The Inner Door, 1970-1980 lenge, but began to sense the nature of the competitive threat by the as Japanese firms made growing inroads into the mid- to late-1960~~ United States and other foreign markets."9 American auto firms made increasing attempts from the 1960s to penetrate the Japanese market as one important way to meet the Japanese challenge, although government controls constrained their efforts.120 Formidable tariff and non-tariff barriers effectively blocked most U.S. and other foreign motor-vehicle imports throughout the 1960s, and the "Big Threeyygenerally hesitated to assist Japanese competitors simply by licensing their technologies. Investment options also were limited. U.S. auto managers calculated, for example, that tariffs, quantitative restrictions on engine imports, and other Japanese controls rendered uneconomic the establishment of local assembly operations.121 And government rules prohibited foreign makers from setting up wholly owned production facilities, restricted to an unspecified minority percentage the level of foreign ownership in newly created joint ventures with Japanese firms-and then, only with Japanese partners who were not members of the automobile industry-and limited to just 7 percent foreign equity participation in any existing Japanese motor-vehicle maker.122 These restrictions imposed particularly onerous burdens on Ford and General Motors, who, for numerous reasons, favored wholly owned foreign subsidiaries.lZ3 Despite these restrictions, however, the American companies all chose to attempt direct investments from the late 1960s, and appealed to Japanese business and government leaders to modify barriers to foreign automobile investment. The continued development of the Japanese auto industry led Ford, for example, to generate an internal 1967 proposal, dubbed "Major Manufacturing Program," to establish a wholly owned automobile production facility in Japan.lz4And, by early 1968, both Ford and Chrysler had determined that they would seek permission to directly invest in local manufacturing operations.125 GM also demonstrated increasing interest in such an undertaking towards the end of the decade.126 Based on these strategic decisions, Big Three management vigorously lobbied for greater investment access. With assistance from the '

Thi

d

l d df

The Inner Door, 1970-1980

U.S. Department of State, for example, executives from Ford, GM, and Chrysler visited Tokyo in December 1967 and appealed to Japanese automobile managers to ease FDI regulations. Leaders from the Big Three also raised the issue of capital controls in numerous conversations with Japanese government officials and in the Japanese media. And, in an extraordinary private meeting in New York in October 1968, Henry Ford 11, together with IBM's Arthur K. Watson, met with Nomura Securities Chairman Okumura Tsunao and other high-ranking Japanese business leaders to discuss trade and investment restrictions. 'We want a two-way street in commerce and capital transactions between Japan and [the] United States," Ford told his Japanese counterparts. 'We can't, and we won't . . . tolerate the one-way street of automotive trade between Japan and Arneri~a."l~~ Watson then cited numerous controls on foreign companies in the computer industry as well, and asked more generally that the Japanese "accept the basic logic of international commerce-those who wish to compete abroad must accept competition at home."128 This foreign pressure did not, however, persuade the Japanese authorities to lift public controls. Government officials explained that the domestic auto industry in the late 1960s was badly fragmented and grossly inefficient-no fewer than 10 Japanese companies produced automobiles in the 1960s, they pointed out, for exampleand that foreign entrants might well overwhelm local firms.129 The government had therefore undertaken to "rationalize" the industry by consolidating these numerous firms into two major groups, one controlled by Toyota and the other by Nissan. Capital liberalization in the automobile industry would eventually occur, these officials promised, but only after the industry was adequately strengthened. Specifically, the government maintained through late 1969 that it could not modify controls until April 1972, and that even then restrictions might well remain.130 Japanese motor-vehicle producers stood firmly behind the government's policies. To the Americans, local auto executives maintained that the domestic industry was still too weak and inefficient to allow U.S. auto investment in Japan. Nissan President Kawamata Katsuji, then serving concurrently as Chairman of the powerful Japan Auto-

Thi

d

l d df

The Inner Door, 1970-1980

mobile Manufacturers Association, for example, said that U.S. auto executives flattered their Japanese counterparts with talk about the rapid development of the Japanese automotive industry, but told the Americans that they greatly overestimated the industry's strengths: 'Where we stand now," Kawamata told U.S. auto managers in late 1967, "is not as good as you think it is."l3' The entry of the Big Three at this time, Kawamata and other Japanese executives warned, could well threaten the very survival of the still vulnerable Japanese auto industry. To local government officials, however, domestic carmakers pressed for continued protection until they could not only compete against, but effectively contain, foreign auto companies operating even on their home turf. The position of the domestic industry, at least according to one highly placed Japanese government official, carried enormous weight in policy circles: "If the industry would agree" to deregulate foreign auto investment, Deputy Director Honda Sanae of MITI's Heavy Industries Bureau said in confidence to the Ford representative to the 1967 U.S.-Japan auto talks, "MITI would be willing to liberalize."132 Just as Japanese business initially influenced the government's determination to retain controls, so local-industry pressure also would lead the government eventually to ease those controls. The critical shift in industry position occurred after Mitsubishi Heavy Industries (MHI) opted to defy government policy and break ranks with other domestic auto manufacturers heretofore united in opposition to the entry of the foreign firms. Unwilling to subsume its motor-vehicle operations under either of the two domestic champions-yet in dire need of technology and overseas distribution to improve its competitive position within as well as outside Japan-MHI chose instead to seek an alliance with an American automaker.133 To implement this strategy, MHI Executive Vice-president Makita Yoichir6-the same Mitsubishi official who had pressured Kirin to join forces with CocaCola almost a decade earlier-quietly approached Chrysler in June 1968 and proposed that the U.S. firm acquire 35 percent of the equity in a new Japanese automobile company, Mitsubishi Motor Corporation (MMC), which would develop as a spin-off of MHI's Motor Vehicle Division.134 In exchange for Chrysler entry into the Japanese

Thi

d

l d df

The Inner Door, 1970-1980

industry and MMC distribution of Chrysler products in Japan, Makita suggested, the American firm could supply automobile technology and related know-how to MMC and distribute the joint venture's products in the North American and other overseas markets.135 The terms of the accord would be carried out, the Mitsubishi representative promised, once the Japanese government had agreed to the plan. Eager to penetrate the Japanese industry yet convinced that Japanese authorities would not permit it to establish a wholly owned auto subsidiary in Japan, Chrysler agreed to the proposed arrangements with Mitsubishi in February 1969 and publicly announced its intentions to joint venture with MHI that May.136 Revelation of the Mitsubishi-Chrysler accord stunned the Japanese government. Confronted with a direct challenge to established automobile policy by a leading member of one of Japan's most powerful industrial groups, the government suddenly backed down from its stated positions and announced that it would revise significantly its automobile-industry policies. Specifically, MITI decided to abandon efforts to consolidate all Japanese automobile manufacturers into 2 main groups, and advanced partial deregulation of FDI in the automobile industry.137 In addition, the authorities indicated that they would now consider allowing joint ventures between foreign and Japanese auto companies such as the proposed combination of Chrysler and Mitsubishi.138 "One of Japan's [major] industrial groups openly had challenged the automobile policy of the Ministry of International Trade and Industry," one Japanese newspaper concluded, "and succeeded in virtually nullifying that policy."139 Indeed, as the political scientist Chalmers Johnson has rightly concluded, "credit for liberalizing the automobile industry in Japan must go to Mitsubishi and not to MITI or any other element of the Japanese government."l40 News of the Mitsubishi defection prompted other second-tier Japanese motor-vehicle makers to consider foreign partnerships. Within months of the Mitsubishi announcement, for example, T6yb Kbgyb (now Mazda) was deep in discussions with Ford over a possible capital tie-up.14' T6y6, like Mitsubishi, sought access to U.S. technology and overseas distribution. And Ford, like Chrysler, wanted local distribu-

Thi

d

l d df

The Inner Door, 1970-1980

tion and a direct stake in a Japanese-based automobile manufacturer.142 Ford's talks with T6y6, however, did not go as smoothly as had those between Chrysler and Mitsubishi. Convinced that government restrictions would permit at best a minority U.S. position in a Japanese auto joint venture, following lengthy discussions, Ford proposed, in April 1970, that it acquire 35 percent of T6y6 K6gy6, matching the investment ratio Chrysler and MMC had just agreed , proved unupon. T6y6 K6gy6 President Matsuda K ~ h e i however, willing to consider selling more than 20 percent to Ford, despite Ford's offer to guarantee that it would never seek outright control of T6y6.143 That unwillingness, together with what Ford considered T6y6's high asking price for a 20-percent share, the Japanese firm's serious business difficulties in the early 1 9 7 0 ~and ~ T6y6 management's apparent suspicion that Ford sought to invest merely to gain access to T6y6's Wankel rotary-engine technology, apparently were enough to kill the talks by early 1972.144 Isuzu, meanwhile, had initiated talks with General Motors. Strong in truck production but lacking requisite resources to develop an internationally competitive automobile operation on its own, Isuzuat the behest of C. Itoh, Dai-Ichi Bank, Kawasaki Heavy Industries, and Nippon Steel, all major Japanese backers deeply concerned with Isuzu's competitive weaknesses in the automotive field-approached GM about joint-venture possibilities in the late 1960s; the two sides began direct talks in Tokyo in June 1969.145From GM Isuzu sought to obtain support for automobile design, access to GM's overseas distribution channels, and a badly needed infusion of capital.146 In return, Isuzu offered the American company local distribution of GM products through Isuzu's Japanese network, a significant equity stake in the Japanese auto industry, and the right to distribute Isuzu goods throughout the world. GM's Overseas Operations Division, which conducted a major study of the Japanese automotive industry as it continued its talks with Isuzu, felt that government and other restrictions on acquisitions, together with the difficulties of establishing an entirely new automobile company in Japan, left GM with few options in that market.147 "In Japan," the study concluded, "the choice is between participation in the automotive industry through

Thi

d

l d df

The Inner Door, 1970-1980

a joint venture, or effectiveexclusion from the largest vehicle market outside the U.S."148 GM previously had considered other Japanese automakers as possible partners. Toyota and Nissan were judged simply too large and too independent to warrant serious consideration, however, and Honda signaled its strong intention to remain independent of other carmakers. Mitsubishi and T6y6 KBgy6, on the other hand, were already in talks with GM's U.S. competitors. Therefore, stated a critical internal memorandum to GM's Finance Committee, ccIsuzuis, for all practical purposes, the only japanese vehicle manufacturer available for GM to consider for affiliation."149 The GM-Isuzu negotiations, which prompted sensational stories in the Japanese media, led to a basic accord on a joint-venture plan together with government approval of both the GM and Chrysler arrangements. Banner headlines and front-page stories in many of Japan's leading newspapers used words such as "bridgehead," "encirclement," "landing," and "invasionyyto describe GM's proposed investment. Indeed, according to Sony's Morita Akio, "The press saw the story of GM's interest in Japan as one of the most important stories of the postwar era."150 In the negotiations, Isuzu offered GM a stake amounting to less than 25 percent of Isuzu's equity, but GM insisted on a more substantial share of the company if it were to enter into the venture. In early 1971, the two sides finally agreed on a 34.2-percent GM stake, just exceeding one-third of Isuzu's capital and thereby providing GM with significant legal standing in the Japanese company.151This arrangement marked the first time in its history that General Motors had agreed to take a minority position in an overseas joint venture.lS2After the fourth round of capital liberalization in mid-197'1, the government, which had delayed-but realistically could not block-approval of either the Chrysler or GM accords, now that powerful members of local industry so clearly and directly supported the entry of the two U.S. companies, formally validated the requisite investment applications of the two foreign automakers. Although the Japanese government declared an end to most major public controls over foreign auto investment in May 1973, the Chrysler/Mitsubishi and GM/Isuzu accords would continue to con-

Thi

d

l d df

The Inner Door, 1970-1980

strain the American companies' local investment options for many years thereafter. The accord with Mitsubishi, for example, expressly prohibited Chrysler from increasing its equity in MMC above 35 percent without MHI's approval, and obliged Chrysler to offer MHI the right to buy back Chrysler's shares, if ever the U.S. company should wish to sell them, before offering them to other potentially interested parties.153 Furthermore, the dispersal of MMC shares among diverse members of the Mitsubishi group after formal conclusion of the accord virtually ensured that Chrysler could not gain future control of the Japanese auto firm by allying with other MMC shareholders. Indeed, as MHI's Makita explained in an attempt to reassure business and government colleagues that the proposed tie-up with American capital did not pose a major threat to domestic control of Japanese industry, 'We view this relationship as one of Chrysler with the Mitsubishi group rather than as one between Chrysler and the Mitsubishi Motor C~rporation."'~~ Nottori shinpui nui-"Takeover Not a Concern," read a headline of Nihon keizui shinbun shortly thereafter.155 Important restrictions also were incorporated into the GM arrangement with Isuzu. That arrangement prohibited GM from increasing its equity share in Isuzu above the 34.2-percent ratio for 5 years after the start of the accord, and further bound GM never to possess more than 49 percent of the total equity of the Japanese c0mpany.1~~ Indeed, to calm Japanese fears, then GM Chairman James K. M. Roche publicly promised that GM would never take control of Isuzu. In a statement to the Japanese press upon his arrival in Tokyo on 13 April 1971 to conclude the affiliation talks with Isuzu, the GM Chairman vowed: In the eaily stages of considering possible approaches by General Motors to some way of participating in the Japanese [motor-vehicle] industry, it became clear to us that whatever our means of participating, it would be necessary to accept a minority position in a Japanese enterprise. We made the decision to proceed on this basis and have no plan to take over or control the management of Isuzu, now or in the future.157

To further protect against a GM takeover, Isuzu organized an exclusively Japanese "blocking party of stabilized shareholders," as then

Thi

d

l d df

The Inner Door, 1970-1980

MITI Minister Miyazawa Kiichi termed the arrangement, which would ensure that control of Isuzu remained in Japanese hands. "In concept," according to Roche's understanding of the blocking-party idea, "these should be significant holders who can be counted upon to support a Japanese viewpoint in case of a serious difference between GM and Isuzu, and whose holdings would remain constant."l58 The accord also specified that Isuzu officers would hold the positions of Chairman of the Board and President. In addition, the officers GM sent to Isuzu-limited to no more than one-third, and, in practice, amounting to just 4 out of roughly 30 directors at the Japanese firm-would have only limited proxy powers, and the U.S. company would have to obtain prior consent from Isuzu before investing in Isuzu subsidiaries, suppliers, or dealers.159 Ford also discovered that major investment impediments remained even in the era of "complete liberalization." For one thing, such liberalization did not relieve foreign companies such as Ford from having to gain the consent of an existing Japanese auto firm before attempting an acquisition. Moreover, acquisition as a means for Ford to directly invest was further limited because Chrysler and GM already had concluded arrangements with 2 of the 3 existing Japanese auto companies most desirous of obtaining foreign partners. In addition, cross shareholdings and other "countermeasures" still made it difficult for a foreign company to purchase even a significant minority interest in a major Japanese automobile firm such as Toyota, or to exercise important influence over the firm even if it could purchase such an interest. And Ford managers judged that establishing an entirely new automobile company in Japan, either alone or in concert with local firms, simply was not "economically feasibleyybecause of the requisite costs in terms of time and money160 Profound troubles at Tby6 Kbgyb, however, finally led the Japanese carmaker to resume in the late 1970s merger talks with Ford terminated earlier in the decade. Devastated by a rise in gasoline prices which severely cut sales of its fuel-inefficient rotary engines and for other reasons, Tbyb Kbgyb labored under an enormous debt, estimated at well over $1 billion, in the late 1970s.161 The company's declining fortunes led Sumitomo Bank, Tbyds main bank with large

Thi

d

l d df

The Inner Door, 1970-1980

outstanding loans to the company, to seek to rescue the faltering automaker. Yet Sumitomo faced a profound dilemma, for it recognized that T6y6's top management was deeply reluctant to sell a substantial equity share to a foreign company. To resolve this dilemma, Sumitom0 decided to staff Toy6 with new managers seconded from the Bank.162 T6y6 Kbgy6's revamped management team then approached Ford in 1979 to seek resumption of the joint-venture talks broken off 7 years earlier. This second round of negotiations finally produced an understanding. T6yii's severe financial difficulties and other factors did, it is true, give some Ford officials considerable pause about the prospect of a joint-capital tie. O n the other hand, an equity position in T6y6, in the prevailing Ford view, would benefit the U.S. company in a number of important ways. These benefits included an enhanced relationship with a supplier of low-cost motor vehicles for the Asian and other markets, increased opportunities to source components from T6y6, and a chance for Ford once again to participate directly in the Japanese motor-vehicle market. For T 6 p , on the other hand, a capital tie with Ford promised technology, increased overseas distribution, and cash.163 In their final agreement, Ford acquired a modest equity stake in T6y6 K6gy6. The Sumitomo Bank, acting as intermediary, suggested that Ford acquire between 20 percent and 25 percent of the Japanese carmaker, and Ford-after receiving negative signals from the Bank about possibly acquiring a larger percentage-settled on the 25-percent figure.164 As part of the final arrangement, Ford also' pledged that it would not seek to gain a controlling interest in T6y6 K6gy6.1b5 TOfund its one-fourth stake, Ford used the proceeds from the sale of the Yokohama real estate it had first obtained before World War 11, but which had been condemned in the late 1970s by the City of Yokohama.166 On 26 January 1980-54 years and 11 months after its first direct investment in the Japanese automobile industry-Ford finally managed to reestablish a direct automobile-manufacturing presence in Japan.'67 Thus Ford, the first American carmaker to participate in the Japanese automobile industry before World War 11, was the last American carmaker to participate after the war.

Thi

d

l d df

The Inner Door, 1970-1980

The cases of Dow, Motorola, Ford, General Motors, and Chrysler do not, of course, cover the universe of American investment experiences in Japan during the 1970s. Some U.S. firms, such as B. F. Goodrich and ITT, chose to liquidate substantial equity positions they had managed to establish earlier for reasons essentially unrelated to Japan. Other American companies, including Eastman Kodak, continued to underestimate Japanese competition and therefore did not make serious efforts to invest in Japan during the period.168 And still others apparently hesitated to attempt entry because past Japanese restrictions had left them unsure of the true extent of Japan's liberalization. Nonetheless, it is clear that Japan continued to maintain major impediments to American direct investment in such important sectors as the chemical, electronics, and motor-vehicle industries throughout the 1970s, and that the impact of these restrictions was substantial.

CONCLUSIONS Japanese restrictions posed major barriers to foreign direct investment in Japan throughout the 1970s. Government regulation constituted the most important impediment to FDI inflows early in the decade, although foreign and other pressures forced the authorities gradually to modify their controls over the period. In place of these public controls, however, private restrictions became increasingly important barriers to foreign investment. Some of these restrictions were deliberately imposed by Japanese business in anticipation of capital liberalization, whereas others were quite unintentional and had operated in the local economy well before capital decontrol; yet both hindered potential foreign investment even after the easing of government policy. These public and private controls directly influenced the fortunes of numerous American multinationals eager to invest in the Japanese economy and provide an important explanation for the continued low levels of foreign direct investment during the 1970s. For example, Dow Chemical, Motorola, Ford, General Motors and Chrysler-

Thi

d

l d df

The Inner Door, 1970-1980

all leading international manufacturers in their respective fields in the 1970s-expended enormous efforts over considerable periods of time to overcome barriers to investment in Japan. Partially as a result of these barriers, Japan, which ranked eleventh as a recipient of total stocks of U.S. FDI in 1970, still ranked eleventh in 1980. Although American direct investment in Japan did increase considerably during the 1970s, by 1980 Japan still trailed Venezuela, Mexico, and Brazil in addition to many of the Western industrialized economies as host to total stocks of U.S. FDL169 Japanese business played a highly influential role in the institution and operation of these investment restrictions. As the experiences of Dow and Motorola demonstrate, public controls backed up by private interests limited American direct investment in Japan in the early part of the 1970s. And, once these formal, public controls had been lifted, private Japanese business practices and arrangements partially replaced impediments earlier applied through the public sector. In general terms, therefore, the means of restricting FDI largely had changed during the 1970s, but the major role played by domestic business had not.

Thi

d

l d df

Conclusions

At least two powerful sentiments historically have shaped Japanese attitudes towards foreign investment. First, many Japanese have long felt a strong sense of national pride in their distinct economic, political, and social arrangements. Though usually a source of positive inspiration, at times this pride also has translated into a strain of nationalism that has encouraged the Japanese to protect and nurture domestic institutions, even at great expense to foreign interests. Second, the Japanese have experienced for centuries a related sense of fear that foreign intervention might threaten these institutions and, indeed, their overall national sovereignty. The country's relatively small geographic size and proximity to powerful forces on the Asian mainland, together with the intervention of the Western powers in China and other neighboring lands in the nineteenth century, contributed to an acute perception of vulnerability which largely underlay this fear. No analysis of Japanese treatment of foreign invest-

Thi

d

l d df

Conclusions

ment should ignore these persistent and deeply felt emotions of pride and fear.

M A N A G E D ACCESS These combined sentiments encouraged the Japanese to impose severe controls on virtually all types of international economic interaction, including foreign investment, throughout much of the nation's early modern period. Indeed, following a brief and limited opening to Western economic exchange from the late 1500s to the early 1600s, Japan enforced an almost total prohibition against foreign trade and investment for more than 200 years. Only during the latter half of the nineteenth century, largely in response to direct pressures from the United States and other Western powers, did Japan again resume limited economic contacts with the outside world. These contacts included the very first Western investments on Japan's main islands, although such investments were carefully restricted to the treaty ports sequestered from the greater domestic market.' Japan's determination in the late nineteenth century to "catch up" with the advanced economies of the West, however, largely motivated the country's leadership to reassess traditional policies and practices towards foreign investment and other aspects of economic involvement with the world community. Though still fearful that foreign participation in the domestic economy might pose a serious threat to the nation, many influential Japanese came to realize that rapid economic development required the importation of foreign technologies, capital, and other assets not otherwise or adequately available to local entrepreneurs. This realization, together with the desire to terminate the unequal treaties imposed by the West in the 1850s, encouraged Japan's leadership to alter significantly its international economic policies at the end of the century. Partially to fulfill her new objectives, Japan chose to experiment with various forms of foreign economic participation in her domestic market. Concurrent with the abolition of the unequal treaties, in 1899 the leadership therefore created new institutional arrangements

Thi

d

l d df

Conclusions

to funnel foreign portfolio capital into domestic industry, locally to protect foreign patents and trademarks, and to permit the entry of American and other foreign direct investment in the domestic market for the first time in Japanese history. Indeed, the authorities proved so eager to obtain the fruits of foreign industrial progress that they actively encouraged inflows of FDI in cases where the country sought to develop rapidly an industry with little or no Japanese pre~ence.~ Based in part on these various experiments, by about 1930 an increasingly powerful private sector, generally supported by the government, began to develop a strategy towards FDI which aimed to extract many of the benefits of such investment while avoiding its perceived shortcomings. Specifically, a growing number of Japanese entrepreneurs worked through the bureaucracy to encourage measures that would separate foreign technology and capital from foreign control. This new strategy-whose emergence was hastened but not fundamentally determined by the growth of militarism-included pressures and inducements for foreign companies to transfer technologies and other assets to Japanese enterprise in lieu of direct investment or, failing that, to encourage joint ventures with Japanese capital. This strategy also encompassed government support for domestic rivals where foreign companies sought to establish or maintain independent operations in Japan. The exceptional years of war and occupation interrupted this nascent strategy, yet restrictions on foreign investment continued and, indeed, intensified during the 1940s. With the onset of war, Japan broke off economic relations with the United States and most other industrialized nations, and, during the Allied Occupation, domestic conditions did not permit Japan immediately to reimpose its prewar foreign investment strategy. Yet, even if the operation of this strategy did not continue during that exceptional decade, restrictions on foreign investment most certainly did. In wartime, of course, the authorities barred American and most other FDI and expropriated many such investments that had entered before the war. And, during the Occupation, American and Japanese officials together prevented the entry or development of virtually all FDI. Japan reinstituted and greatly refined her strategy towards foreign

Thi

d

l d df

Conclusions

investment as the nation regained independence in the early 1950s. Under strong and continual business influence, the government operated a sophisticated, comprehensive system to screen out most FDI while at the same time encouraging inflows of foreign technology and other coveted assets held by foreign companies. This system functioned throughout the years of rapid postwar economic growth. The Japanese government gradually began to remove foreign capital controls in the 1970s, yet significant investment restrictions originating in the private sector continued to impede inflows of direct investment from abroad. Under intense and prolonged pressure from foreign governments and international organizations as well as interested segments of domestic business, the government, with few exceptions, gradually removed outright public controls on foreign-investment inflows. This process, formally begun in the late 1960s, culminated in the abolition of the Foreign Investment Law in 1980. At the same time, however, various institutional arrangements and other factors operating in the Japanese private sector-some intentionally created but others only coincidentally hampering foreign-investment inflows-continued to limit American and other FDI, even after public-sector barriers had been largely eliminated. Despite Japan's long history of foreign-investment restrictions, however, the United States government generally did little to support the efforts of American companies seeking ways to overcome these ~ restrictions. When investment controls grew severe in the 1 9 3 0 ~for example, the U.S. government chose largely to ignore the pleas of American investors as well as the appeals of its own Japan-based diplomats who sought modification of restrictive Japanese foreign investment policies and practices. Official U.S. pressure on Japan, officials in the State Department and elsewhere in Washington believed, would deplete precious political capital needed to deter the Asian nation's growing military ambitions in China and elsewhere. Nor did the U.S. government provide significant support for American investors during most of the ensuing four decades. Indeed, following the end of World War 11, U.S. officials in Washington and in the Tokyo-based Allied Occupation Government themselves created major foreign investment restrictions in Japan deemed necessary to

Thi

d

l d df

Conclusions

protect the Japanese economy in the immediate aftermath of war. As in the prewar decade, so too during the decades following war and occupation the U.S. government largely subjugated concerns over Japanese economic protectionism to bilateral security issues. And, during the 1970s, Washington apparently remained so preoccupied with longstanding defense questions, as well as with new issues involving the reversion of Okinawa, the textile and other trade disputes, and growing economic and social problems at home, that it either could not or would not adequately support the efforts of the American investor in Japan. Largely unchallenged by U.S. government officials, Japanese investment restrictions effectively limited the entry and development of American direct investment. Some American companies, to be sure, did not make substantial efforts to undertake or maintain investments in Japan either before or after World War 11. Among such firms, many perceived better opportunities in the U.S. and European markets, or miscalculated the long-term trade-offs between foreign technology licensing and foreign direct investment. Yet numerous other American firms, including some of the nation's oldest, largest, most experienced, and most competitive multinationals, managed to achieve, at best, only limited investment ccsuccessyy in Japan even after enormous commitments of technology, managerial resources, and other assets. The generally difficult experiences these multinationals encountered, together with the powerfully discouraging signals such experiences communicated to other American firms who might consider investing in Japan, significantly limited overall levels of American investment. Rather than U.S. multinational "neglect" of or "indifferenceyytowards the Japanese market so often emphasized in previous accounts to explain the low levels of U.S. direct investment, the importance of Japanese restrictions in impeding U.S. investment in modern Japan therefore merits greater emphasis.

Thi

d

l d df

Conclusions T H E POLITICAL ECONOMY O F JAPANESE C A P I T A L C O N T R O L S

Who initiated and shaped the application of these investment restrictions? Much of the literature on the modern Japanese political economy emphasizes the power of the Japanese state in determining national economic policy, and therefore suggests that, at least with regard to restrictive public policies, the government played the key role. Among distinguished Japan specialists, for example, Chalmers Johnson has underlined the power and influence of the "developmental state" and, more specifically, of MITI and other departments of the economic bureaucracy in setting national economic policy.3 These government agencies constitute "the source of all major policy innovations in the system," according to Johnson, and initiated "most of the ideas for [postwar] economic growth"-ideas to which the business community reacted with "responsive dependence."4 In addition, he claims, the economic bureaucracy then largely determined the substance of resulting policies, which the state generally undertook to promote its own views of how best to promote national economic development. Yet these resulting policies, according to Johnson, did not always benefit interested domestic business groups for, in the developmental state, "economic interests are explicitly subordinated to political objectives."5 T. J. Pempel similarly stresses the power of the bureaucracy to set economic policy in his analysis of Japan's "state-led capitalism," as does Ezra Vogel in his study of "guided free enterprise" in J a ~ a n . ~ The enormous power of the state asserted by these and other specialists on Japan has led comparative political economists likewise to emphasize statist notions of economic policymaking in modern Japan. John Zysman, for example, explains in his account of Japan's "state-led growth" how the Japanese government "has continuously formed its own view of the future of Japanese industry. . . and then pursued that vision" in a system where MITI "dominated" industry.' Peter Katzenstein asserts that the mighty government in "statist Japan" has the wherewithal to bring about no less than the "structural transformation" of the entire national economy, and Stephen Krasner declares that Japan's is one of the very "strongest states"

Thi

d

l d df

among those nations with advanced market ec~nomies.~ Indeed, according to George Lodge, in postwar Japan an unusually powerful government could, among other things, "change the behavior of important groups such as business in order to further its policies."9 There are boundaries to state power in Japan as elsewhere, these authors all conclude; yet in comparative international terms these same observers claim that the boundaries drawn in Japan have enabled the government to initiate and shape economic policies to a greater extent than in almost all other developed capitalist economies.10 In contrast to those who argue for this statist interpretation, however, in recent years a number of analysts have asserted that other forces in the Japanese political economy effectively vie with the government to initiate and shape the substance of state action. For example, Richard Samuels, a leading exponent of this latter view, believes that modern Japanese economic history has been influenced critically. by policy initiatives taken "both by the state and by private actors."ll Moreover, Samuels asserts, in this history domestic business and the bureaucracy together shaped the ultimate substance of economic policies through a process of negotiated "reciprocal consent."12 Daniel Okimot0 likewise emphasizes the "interdependencey' of business and government in formulating policies based on their mutual capacity to forge "an identity of interests and reach consensus on a common set of collective goals."l3 And John Haley finds that numerous institutional factors, including powerful domestic business groups, oblige MITI and other sectors of the economic bureaucracy to "compromisey'and "negotiate" in the economic policymaking process.14 The findings in this study generally support the more recent emphasis on the role of the private sector in Japanese economic policymaking but indicate that this role often proved even more significant than many in this latter school would assert. Specifically, in numerous cases spanning several decades, this study finds that domestic business largely initiated foreign investment policies, and greatly influenced their timing and substance. Ldeed, this analysis suggests that Japanese business often played this critical role even during the decades of the 1950s and 1960s-a period often referred to as the high tide of postwar government power in Japan.

Thi

d

l d df

Conclusions

Numerous case studies set forth in this history clearly illustrate the enormous power of the Japanese private rector to initiate and shape the application of foreign-investment ~olicies.The cases of Ford and General Motors in the 1930s, for example, demonstrate the critical role of Nissan's Aikawa in convincing the MCI and the Army to support the domestic automobile industry at the expense of foreign competitors already operating in Japan. The case of Coca-Cola in the 1950s shows not only how Kirin, Sapporo, Asahi, and their domestic business allies in the soft-drink industry effectively lobbied the MOA to keep Coke out, but also how Mitsubishi Heavy Industries, a leading member of the same industrial group to which the weaker Kirin also belonged, later managed to persuade that same Ministry-in order to advance MHI's own evolving interests-to reverse official policy and let Coke in. Much the same pattern emerges from some of this study's more recent case histories. The experience of Texas Instruments, for example, elucidates the highly influential role of the Japanese electronics industry during the 1960s in convincing MITI to block, and later to approve, TI'S direct manufacturing investment. The case of Dow Chemical in the 1970s points up the enormously influential role of the Japanese caustic-soda industry in shaping MITI's initial policy towards Dow's investment proposal. And the example of Motorola likewise depicts, during the early 1970s, the ability of the Japanese semiconductor industry to impede through application of public policies this American company's efforts to establish a manufacturing plant within the Japanese market. Thus, the cases of Ford, General Motors, CocaCola, Texas Instruments, Dow Chemical, and Motorola suggest that Japanese business critically influenced foreign-investment policies both before and for many years after World War 11. These policies generally conformed to the state's long-term objectives to promote domestic industry but often were not determined by the state. Not every case study, however, suggests such a powerful role for the private sector. In neither the Western Electric nor the Victor Talking Machine cases, for example, does the evidence indicate that local industry significantly influenced government policy towards these American multinationals' respective investments in telephone and phono-

Thi

d

l d df

Conclusions

graph manufacturing in early-twentieth-century Japan. And, when IBM and Otis Elevator sought to re-establish their prewar operations in early postwar Japan, the record does not show that local business initiated or shaped government investment policies towards these firms. Thus, the experiences of Western Electric, Victor Talking Machine, IBM, and Otis Elevator constitute important exceptions to the dominant pattern. What do these latter cases tell us about the power of Japanese business demonstrated in the former case studied In this latter group, the American companies all sought to enter or re-enter industries in which Japanese interests did not hold powerful positions. In the former group, on the other hand, the American companies attempted to undertake or maintain investments in industrial fields where Japanese firms already had achieved a substantial presence. This pattern suggests that, in general, the Japanese private sector critically influenced foreign-investment policies provided domestic business held a strong position in the concerned industry. In addition, this study finds that sectors of the Japanese business community initiated and shaped numerous foreign-investment restrictions even after public controls had eased. Specifically, rising foreign and domestic pressure from the 1960s eventually forced the government substantially to modify longtanding capital regulations. Deprived of public means of protection, many individual business sectors threatened by foreign capital inflows now found protection through private means. In the Dow case, for example, the domestic caustic-soda industry managed to frustrate largely through private measures the investment efforts of the American company even after the government no longer could meet that industry's protectionist demands. And, in the Motorola case, the character of the domestic semiconductor industry, in addition to other aspects of the local business environment, significantly impeded attempts by the American company to establish its own direct investment in Japan, even after the government had undertaken its capital-liberalization program. Japanese business did not intentionally create all of the private-sector impediments that confronted foreign investors in the 1970s, as previously stated, yet in many important instances local business did continue to influence

Thi

d

l d df

Conclusions

critically foreign-investmentrestrictions, even after public regulations had been greatly relaxed. If the forging of Japanese economic policy in the domain of foreign investment is any indication of a larger pattern, then to ignore the vital role of domestic business is seriously to misrepresent the operation of the modern Japanese political economy. Indeed, not only did the private sector often initiate and then largely determine the timing and substance of the state's capital control policies; it also played a crucial role in the imposition of foreign-investment restrictions which operated even after state controls had eased. Business, in short, proved central to the story.

Thi

d

l d df

Appendixes

Thi

d

l d df

Thi

d

l d df

Appendix A: The United States-Japanese Treaty of Commerce and Navigation of 1911 (excerpts)

The President of the United States of America and His Majesty the Emperor of Japan, being desirous to strengthen the relations of amity and good understanding which happily exist between the two nations, and believing that the fixation in a clear and positive manner of the rules which are hereafter to govern the commercial intercourse between their respective countries will contribute to the realization of this most desirable result, have resolved to conclude a Treaty of Commerce and Navigation for that purpose. . . .

Article I The citizens or subjects of each of the High Contracting Parties shall have liberty to enter, travel and reside in the territories of the other to carry on trade, wholesale and retail, to own or lease and occupy houses, manufactories, warehouses and shops, to employ agents of their choice, to lease land for residential and commercial purposes, and generally to do anything incident to or necessary for trade upon the same terms as native citizens or subjects, submitting themselves to the laws and regulations there established. . . . The citizens or subjects of each of the High Contracting Parties shall receive, in the territories of the other, the most constant protection and security for their persons and property, and shall enjoy in this respect the same rights and privileges as are or may be granted to native citizens or subjects, on their submitting themselves to the conditions imposed upon the native citizens or subjects. . . .

Article I1 The dwellings, warehouses, manufactories and shops of the citizens or subjects of each of the High Contracting Parties in the territories of the other, and all premises appertaining thereto used for purposes of residence or commerce, shall

Thi

d

l d df

Appendix A be respected. It shall not be allowable to proceed to make a domiciliary visit to, or a search of, any such buildings and premises, or to examine or inspect books, papers or accounts, except under the conditions and with the forms prescribed by the laws, ordinances and regulations for nationals. . . .

Article IV There shall be between the territories of the two High Contracting Parties reciprocal freedom of commerce and navigation. The citizens or subjects of each of the Contracting Parties, equally with the citizens or subjects of the most favored nation, shall have liberty freely to come with their ships and cargoes to all places, ports and rivers in the territories of the other which are or may be opened to foreign commerce, subject always to the laws of the country to which they thus come.

Article V The import duties on articles, the produce or manufacture of the territories of one of the High Contracting Parties, upon importation into the territories of the other, shall henceforth be regulated either by treaty between the two countries or by the internal legislation of each. Neither contracting party shall impose any other or higher duties or charges on the exportation of any article to the territories of the other than are or may be payable on the exportation of the like article to any other foreign country. . . .

Article VI The citizens or subjects of each of the High Contracting Parties shall enjoy in the territories of the other exemption from all transit duties and a perfect equality of treatment with native citizens or subjects in all that relates to warehousing, bounties, facilities and drawbacks.

Article VII Limited-liability and other companies and associations, commercial, industrial and financial, already or hereafter to be organized in accordance with the laws of either High Contracting Party and domiciled in the territories of such Party, are authorized, in the territories of the other, to exercise their rights and appear in the courts either as plaintiffs or defendants, subject to the laws of such other Party. The foregoing stipulation has no bearing upon the question whether a company or association organized in one of the two countries will or will not be permitted to transact its business or industry in the other, this permission remaining

Thi

d

l d df

Appendix A always subject to the laws and regulations enacted or established in the respective countries or in any part thereof. . . .

Article XVII The present Treaty shall enter into operation on the 17th of July, 1911, and shall remain in force twelve years or until the expiration of six months from the date on which either of the Contracting Parties shall have given notice to the other of its intention to terminate the Treaty. In case neither of the Contracting Parties shall have given notice to the other six months before the expiration of the said period of tweive years of its intention to terminate the Treaty, it shall continue operative until the expiration of six months from the date on which either Party shall have given such notice. Source: United States, Department of State Treaties and Other International Agreements of the United States of America, 1776-1949, E, 416-421.

Thi

d

l d df

Appendix B: The Automobile Manufacturing Industry Law of 1936 (excerpts)

Article I The object of this law is to strengthen national defense and promote industrial progress by establishing the automobile manufacturing industry in Japan.

Article I1 Automobile manufacturing industry, as the term is used in this law means industries designated by ordinance, which engage in the assembly or manufacture of automobiles or automobile parts.

Article I11 Persons who engage in the manufacture of automobiles shall obtain a license from the Government, unless the volume of automobiles or automobile parts to be manufactured or assembled is less than a figure to be fixed by ordinance. The Government shall take into consideration the condition of supply and demand for automobiles and automobile parts, and unless it deems that no obstacle to the establishment of the automobile manufacturing industry will result, the Government shall not grant the license mentioned in the preceding paragraph.

Article IV Persons qualified to receive licenses mentioned in the preceding article shall be only joint stock companies organized under Japanese law of which more than one-half of the shareholders, more than one-half of the directors, more than onehalf of the capital, and more than one-half of the voting rights are or are held by Japanese subjects or juridical persons organized under Japanese law.

Thi

d

l d df

Appendix B The juridical persons mentioned in the preceding paragraph must be juridical persons of which more than one-half of the members, shareholders or officers in charge of conducting business and more than one-half of the amount of capital or more than one-half of the voting rights are not or do not belong to foreigners or foreign juridical persons. . . .

Article VI Subject to the provisions of ordinance, an automobile manufacturing company shall be exempted from payment of income and business profit taxes on its business operations during the year that the license mentioned in Article I11 is obtained and for a period of five years beginning the year following the year in which that license was obtained.

Article VII Hokkaido, prefectures, cities, towns, villages and similar public bodies shall not levy taxes upon the business or on a basis of the capital, employees, manufactured articles or supplies consumed, motive power used or income accruing through the operations of an automobile manufacturing company exempted from income tax and business profit tax, under the provisions of the preceding article.

Article VIII When an automobile manufacturing company imports, with the permission of the Government, tools, machinery or materials necessary to its business, it shall be exempt from the payment of import duties, subject to the provisions of ordinance, for a period of five years from the date of the enforcement of this law.

Article IX An automobile manufacturing company, when expanding its business may, with the permission of the Government, increase its capital to defray the cost of equipment even though the value of previously issued shares is not fully paid up. . . .

Article XI If it is feared that the importation of automobiles or automobile pans will interfere with the establishment of the automobile manufacturing industry, the Government may issue orders restricting, for a fixed period, the importation of automobiles or automobile parts.

Thi

d

l d df

Appendix B Article XI1 If it is feared that the price of automobiles will be lowered and the establishment of the automobile manufacturing industry interfered with, due to the importation of automobiles or automobile parts, the Government, after submitting the matter to the consideration of the Tariff Investigation Committee, may issue orders providing for the levying of import duties, for a fixed period, on such automobiles or automobile parts of up to 50% of the value of those imports, in addition to the import duty thereon specified in the tariff table annexed to the Import Tariff Law. . . . Additional Rules The date of the enforcement of this law shall be determined by Imperial Ordinance. Persons who are already engaged in the manufacture of automobiles or have succeeded to such enterprise at the time that this law takes effect, may continue in business, regardless of the provisions of Article Three, for a period of three months from the day when this law takes effect. . . . Persons who began manufacturing automobiles prior to August 9, 1935, or parties who succeeded to such enterprises and who are conducting such businesses at the time this law takes effect, may continue to conduct such businesses even after the lapse of the period prescribed in the preceding two paragraphs, regardless of the provisions of Article Three, subject to the provisions of ordinance, within the scale of business conducted by them previous to August 9, 1935.. . . Source: Adapted from Peter Kressler "An Evaluation of United States-JapaneseNegotiations of Major Commercial Disputes during the 1930s," PhD Dissertation, University of Pennsylvania, 1968. Emphasis added.

Thi

d

l d df

Appendix C: The United States-Japanese Treaty of Friendship, Commerce and Navigation of 1953 (excerpts)

Article VII 1. Nationals and companies of either Party shall be accorded national treatment with respect to engaging in all types of commercial, industrial, financial and other business activities within the territories of the other party, whether directly or by agent or through the medium of any form of lawful juridical entity. Accordingly, such nationals and companies shall be permitted within such territories: (a) to establish and maintain branches, agencies, offices, factories and other establishments appropriate to the conduct of their business; (b) to organize companies under the general company laws of such other Party, and to acquire majority interests in companies of such other Party; and (c) to control and manage enterprises which they have established or acquired. Moreover, enterprises which they control, whether in the form of individual proprietorships, companies or otherwise, shall, in all that relates to the conduct of the activities thereof, be accorded treatment no less favorable than that accorded like enterprises controlled by nationals and companies of such other Party. 2. Each Party reserves the right to limit the extent to which aliens may within its territories establish, acquire interests in, or carry on public utilities enterprises or enterprises engaged in shipbuilding, air or water transport, banking involving depository or fiduciary functions, or the exploitation of land or other natural resources. However, new limitations imposed by either Party upon the extent to which aliens are accorded national treatment, with respect to carrying on such activities within its territories, shall not be applied as against enterprises which are engaged in such activities therein at the time such new limitations are adopted and which are owned or controlled by nationals and companies of the other Party. Moreover, neither Party shall deny to transportation, communica-

Thi

d

l d df

Appendix C tions and banking companies of the other Party the right to maintain branches and agencies to perform functions necessary for essentially international operations in which they are permitted to engage. 3. The provisions of paragraph 1of the present Article shall not prevent either Party from prescribing special formalities in connection with the establishment of alien-controlled enterprises within its territories; but such formalities may not impair the substance of the rights set forth in said paragraph. 4. Nationals and companies of either Party, as well as enterprises controlled by such nationals and companies, shall in any event be accorded most-favorednation treatment with reference to the matters treated in the present Article. Article XII, Paragraph 2 Neither Party shall impose exchange restrictions. . . except to the extent necessary to prevent its monetary reserves from falling to a very low level or to eAect a moderate increase in very low monetary reserves. It is understood that the provisions of the present Article do not alter the obligations either Party may have to the International Monetary Fund or preclude imposition of particular restrictions whenever the Fund specifically authorizes or requests a Party to impose such particular restrictions. Protocol 6 Either Party may impose restrictions on the introduction of foreign capital as may be necessary to protect its monetary reserves as provided in Article XII, Paragraph 2. Source: United States, Department of State United States Treaties and Other International Agreements, 4.2:2066-2082.

Thi

d

l d df

Appendix D: The Foreign Investment Law of 1950 (excerpts)

Chapter One: General Provisions

Purpose Article I. The purpose of this Law is to create a sound basis for foreign investment in Japan, by limiting the induction of foreign investment to that which will contribute to the self-support and sound development of the Japanese economy and to the improvement of the international balance of payments; by providing for remittances arising from foreign investment; and by providing for adequate protection for such investments.

Principle Concerning Foreign Investment Article 11. Foreign investment shall be permitted to be as free as possible, the system of validation and filing of report[s] pursuant to the provisions of this Law shall be relaxed and eliminatedgradually as the necessity for such measures decreases. . . .

Standards of Validation, License or Recommendation Article VIII. I. The Foreign Investment Commission or the Minister of Finance shall apply the following standards on validating or licensing contracts prescribed in this Law, and preference shall be given to those which will most speedily and effectively contribute to an improvement of the international balance of payments. 1. Directly or indirectly contribut[e] to the improvement of the international balance of payments, or 2. Directly or indirectly contribut[e] to the development of essential industries or public enterprises, or

Thi

d

l d df

Appendix D 3. Necessary for the revival or continuation of existing technological assistance contracts concerning essential industries or public enterprises. 11. The Foreign Investment Commission or the Minister of Finance shall not validate or license contracts prescribed in this Law which fall under any of the following paragraphs. 1. Contracts the provisions of which are not fair, or are in contravention of laws and regulations. 2. Contracts which are deemed to be entered into or renewed in a manner not free from fraud, duress or undue influence. 3. When deemed to have an adverse effect on the rehabilitation of [the] Japanese economy. . . .

Chapter Two: Filing of Report or Application for Validation of Foreign Investment

. . . . Elidation or Filing of Report of Acquisition of Stock or Proprietary Interest Article XI. I. A foreign investor desirous of acquiring stock or proprietary interest in a juridical person established under Japanese law (except in cases requiring prior report pursuant to the provisions of the following paragraph) shall obtain validation from the Foreign Investment Commission in accordance with its Regulations. II. A foreign investor desirous of acquiring stock or proprietary interest in a juridical person established under Japanese law whose acquisition falls under any one of the following items, and who does not desire to receive dividends arising from such stock or proprietary interest by payment to a foreign country, shall file prior report with the Foreign Investment Commission in accordance with its Regulations. 1. New stock or proprietary interest allotted on the strength of legally owned stock or proprietary interest. 2. Stock or proprietary interest transferred from one foreign investor to another. 111. The provisions of the preceding paragraph shall not in any way affect restrictions pursuant to the provisions of the Foreign Exchange and Foreign Trade Control Law. TV. The provisions of paragraphs 1and 2 shall not be applied in cases where a foreign investor receives restoration of stock or proprietary interest pursuant to the provisions of the Cabinet Order concerning Restoration of United Nations' Shares (Cabinet Order No. 310 of 1949), or of the Imperial Ordinance concern-

Thi

d

l d df

Appendix D ing the Restitution, etc. of Allied Nationals Property (Imperial Ordinance No. 294 of 1946).

Article XII. Unless authorized as provided for by Cabinet Order, the Foreign Investment Commission shall not validate the acquisition of stock or proprietary interest pursuant to the provisions of paragraph 1 of the preceding article unless the said acquisition meets with any of the requirements of the following items: 1. Creates additional assets of the juridical person concerned, or 2. If it does not create additional assets of the juridical person concerned, when the said acquisition constitutes a pan of the investment plan of the foreign investor, and is made with national currency which is legally obtained from the conversion of foreign means of payment for the said purpose. . . . Stipnlation of Conditions Article XIV. I. The Foreign Investment Commission may, on making validation pursuant to the provisions of this Law, stipulate conditions upon which validation is based. 11. In the event that the competent Minister as prescribed in the Foreign Exchange and Foreign Trade Control Law indicates to the Foreign Investment Commission conditions with reference to payment to a foreign country relating to matters requiring validation by the Foreign Investment Commission pursuant to the provisions of this Law, the Foreign Investment Commission shall include said conditions in the conditions prescribed in the preceding paragraph. . . .

Chapter Five: Adjustment of Investments and Business Activities by Foreign Investors

. . . . Recommendations of the Foreign Investment Commission Article XIX. I. In the event that government agencies propose to license, validate, approve or take other administrative action with regard to investments or business activities of foreign investors, they shall refer the matter beforehand to the Foreign Investment Commission and request recommendations thereon. . . . 11. Government agencies, in taking administrative actions mentioned in the preceding paragraph, shall respect the recommendations of the Foreign Investment Commission. . . .

Source: Adapted from Japan Foreign Exchange Control Board, Foreign Exchange Control Board Bulletin 6:l-10 (August 1950).

Thi

d

l d df

1st Liberalization Introduction of automatic approval system for establishment of new corporations Relaxation of maximum foreign capital ratio limits under automatic approval system for management participation

2nd Liberalization Increase in number of industries liberalized for establishment of new corporations

3rd Liberalization Increase in number of industries liberalized for establishment of new corporations Relaxation of automatically approved maximum foreign capital ratio for management participation

Liberalization of automotive industry Automotive industry and 5 related industries

Mar.1.'69

Sep.l.70

Apr.l.71

Outline of Liberalization

Ju1.1.'67

Ju1.1.'67

Prior to

Date

(Total) 453 industries

(Total) 447 industries

(Total) 160 industries

33 industries

Industries with Automatic Approval for up to 50% Foreign Capital Ratio (*3)

(Total) 77 industries

(Total) 77 industries

(Total) 44 industries

17 industries

-

Industries with Automatic Approval for up to 100% Foreign Capital Ratio (*4)

Industries Liberalized for Establishment of New Corporations (*I)

APPENDIX E: The Capital Liberalization Program

7% or less

7% or less

7% or less

7% or less

5% or less

Stock Ratio per Foreign Investor

Less than 25%

Less than 25%

20% or less

20% or less

15% or less

Non-restricted Industries

15% or less

15% or less

15% or less

15% or less

10% or less

Restricted Industries ($5)

Stock Ratio of Total Foreign Investors

Liberalization of Acquisition of Stock in Existing Companies for the Purpose of Participating in Management (Automatic Approval) ($2)

Outline of Liberalization

4th Liberalization For establishment of new corpontions: liberalization of all industries allowing either 50 or 100% foreign ownership, expept for 7 industries (*6) which require individual examination Relaxation of automatically approved maximum foreign capital ratio for management participation

100% Liberalization in principle For establishment of new corporations: liberalization allowing 100% foreign ownership in all industries except for 5 excluded industries ("7) and 17 industries with individual liberalization schedules ("8) For management participation: liberalization allowing 100% ownership where the target company's agreement is obtained, except for excluded industries and industries with individual liberalization schedules

Date

Aug.4.71

May.1.73

APPENDIX E (Continued)

Retailing with 11 shops or less 14 of the industries with individual liberalization schedules ("9)

.Mining

All industries except for: 7 industries which require individual examination .228 industries liberalized for 100% foreign ownership

Industries with Automatic Approval for up to 50% Foreign Capital Ratio ("3)

All industries except for 5 excluded industries and 17 industries with individual liberalization schedules

(Total) 228 industries

Industries with Automatic Approval for up to 100% Foreign Capital Ratio ("4)

Industries Liberalized for Establishment of New Corporations (*I)

Less than 25%

Non-restricted Industries

15% or less

Restricted Industries ("5)

Stock Ratio of Total Foreign Investors

Less than Less than 15% or less 10% 25% Where the target company's agreement is obtained, liberalization allowing 100% foreign ownership, except for excluded industries and those with individual liberalization schedules

Less than 10%

Stock Ratio per Foreign Investor

Liberalization of Acquisition of Stock in Existing Companies for the Purpose of Participating in Management (Automatic Approval) (*2)

Apr.1.78

new corporations and management participation with target company's agreement now 4 industries Simplification of procedure: term for automatic approval by Bank of Japan, if no objection by the relevant minister, is shortened from 1 month to 2 wee

.Total exceptions for both establishment of

dules: total exceptions now 4 industries

. Completion of individual liberalization sche-

Liberalization of retail industry Liberalization of retail industry (which was one of the exceptions)

Jun.1.75

May.1.76

Outline of Liberalization

Date

APPENDIX E (Continued)

.Mining

. Mining

and rent (Aug.4.74Nov.30.75) Info processing ind. (Dec.1.74-Mar.3 1.76) Fruit juice producers (until Apr.30.76) Photo sensitive prod. (until Apr.30.76)

.Computer mfg. sales

.Mining

Industries with Automatic Approval for up to 50% Foreign Capital Ratio (*3)

All industries except for: Agriculture, fishery, and forestry .Mining Petroleum refining Leather manufacturing

All industries except for: Agriculture, fishery, and forestry .Mining Petroleum refining Leather manufacturing

All industries except for 5 excluded industries and 4 industries with individual liberalization schedules still not completed

Industries with Automatic Approval for up to 100% Foreign Capital Ratio (*4)

Industries Liberalized for Establishment of New Corporations (*I)

Less than 25%

Non-restricted Industries

15% or less

Restricted Industries (*5)

Stock Ratio of Total Foreign Investors

Less than Less than 15% or less 10% 25% Where the target company's agreement is obtained, liberalization allowing 100% foreign ownership, except for 4 excluded industries

Less than Less than 15% or less 25% 10% Where the target company's agreement is obtained, liberalization allowing 100% foreign ownership, except for 4 excluded industries

Where the target company's agreement is obtained, liberalization allowing 100% foreign ownership, except for excluded industries and those with individual liberalization schedules

Less than 10%

Stock Ratio per Foreign Investor

Liberalization of Acquisition of Stock in Existing Companies for the Purpose of Participating in Management (Automatic Approval) ($2)

Reform of foreign exchange law Full liberalization in principle, and change from approval system to notification system. Abolishment of requirement for agreement by the target company, in the case of purchase of stock in an existing company for management participation

Dec.L180

Industries with Automatic Approval for up to 100% Foreign Capital Ratio (*4)

Stock Ratio per Foreign Investor

Non-restricted Industries

Notes: *I: Establishment of a new corporation in a non-liberalized industry is automatically approved to the same limit that applies for acquisition of stock in an existing company for management participation. *2: Security investment for the purpose of asset management is automatically approved to the same limit that applies for acquisition of stock in an existing company for management participation. *3: Referred to as "1st group liberalized industries': until the 4th liberalization in Aug.4.'1971. *4: Referred to as "2nd group liberalized industries': until the 4th liberalization in Aug.4.7971. "5: 17 industries as follows, defined in the "Cabinet Order Concerning Exceptions etc. to Standard of Validation Based on the Law Concerning Foreign Investment." Water supply, electricity supply, gas supply, broadcasting, local railway, railway-containertransportation, marine transportation, harbor transportation, road transportation, fishery, mining, trust business, banking, mutual financing bank, long-term credit bank, foreign exchange bank, central bank. *6: 7 industries, including agriculture, fishery & forestry, refining and sales of leather manufacturing, manufacturing/sales/rental of computers, information processing, retail operation with more than 11 shops, and real estate. *7: 5 industries, including agriculture/fishery/forestry, mining (liberalized for up to 50% foreign ownership), leather & leather products, and retailing (operations with 11 shops or less are liberalized up to 50%). *8: Industries and timing of liberalization are as follows:

Restricted Industries ("5)

Stock Ratio of Total Foreign Investors

Liberalization of Acquisition of Stock in Existing Companies for the Purpose of Participating in Management (Automatic Approval) ("2)

All industries except for: Agriculture, fishery, and forestry Mining (up to 50% foreign ownership permitted) Petroleum refining Leather manufacturing

Industries with Automatic Approval for up to 50% Foreign Capital Ratio (*3)

Industries Liberalized for Establishment of New Corporations (*I)

Source: Adapted from ACCJ et al., 'Direct Foreign Investment in Japan: The Challenge for Foieign Firms," (Tokyo: 1987).

Outline of Liberalization

Date

APPENDIX E (Continued)

Mar.1.76

(16) Mfg of fruit juice (17) Mfg of photo sensitive materids

9:14 of the 17 industries in *8; (13)-(15) are excluded.

Apr.1.76

Timing of 100% liberalization

(15) Inforination processing business

Mfg of integmed circuits Mfg of meat products Mfg of tomato products Mfg of feedstuffs Mfg of cooked foods for restaurants Mfg & wholesale of clothing Mfg of pharmaceuticals & agrochemicals (8) Mfg of ferro alloys (9) Mfg of hydraulic equipment (10) Mfg of packaging & conveying machines (11) Mfg of electronic precision machines (for medical or electric measuring) (12) Mfg of phonograph records (13) Real estate business (14) Mfg, sales & rental of computers

(1) (2) (3) (4) (5) (6) (7)

Industries

APPENDIX E (Continued)

Individual examination until liberalization Individual examination until Aug.3.74, then automatic approval for up to 50% foreign ownership until liberalization Individual examination until Nov.30.74, then automatic approval for up to 50% foreign ownership until liberalization Automatic approval for up to 50% foreign ownership until liberalization

Automatic approval for up to 50% foreign ownership until liberalization

Comments

Appendix F: The Foreign Exchange and Foreign Trade Control Law of 1980 (excerpts)

Chapter Five: Domestic Direct Investments, Etc. Article XXVI Any foreign investor shall, if he intends to make a direct investment, etc. . . . in advance shall give notification to the Minister of Finance in charge of the industry involved, of those matters prescribed by Cabinet Order such as the object of business, amount, time of performance, and others concerning the said direct investment, etc. . . . Any foreign investor who has given notification. . . shall not perform the domestic direct investment, etc. pertaining to the said notification until the period of 30 days has elapsed counting from the date of receipt of the said notification by the Minister of Finance and the Minister in charge of the industry involved. . . . When the Minister of Finance and the Minister in charge of the industry involved. . . deem it necessary to inquire whether, if the domestic direct investment, etc. pertaining to the said notification was performed, there might be a fear of bringing about the situation mentioned in item (1) or (2) [below]. . . they may extend the period during which the performance of the said domestic direct investment, etc. is prohibited up to four months counting from the day of their receipt of the said notification: (1) That it might imperil the national security, disturb the maintenance of public order, or hamper the protection of the public safety; (2) That it might adversely and seriously affect activities of the business which is the same kind of business concerning the domestic direct investment, etc. (including the business related thereto) in our country or the smooth management of the national economy. . .

Appendix F

Article XXVII When the Minister of Finance and the Minister in charge of the industry involved. . . deem that if the domestic direct investment, etc. pertaining to the said notification was performed, there might be a fear of bringing about the situation mentioned in item (1) or (2) of the preceding paragraph. . . they may recommend the person who has given .notification of the said domestic direct investment, etc. to alter its particulars or to suspend its performance in accordance with Cabinet Order, on hearing the opinion of the Committee on Foreign Exchange and Other Transactions . . . In the case where the Committee on Foreign Exchange and Other Transactions . . . tenders the effect that it is difficult to form its opinion in consideration of the subject matter within the period of four months . . . the period. . . during which the performance of the domestic direct investment, etc. is prohibited shall be five months.. . Source: As cited in Richard W. Rabinowitz, ed., The Law of Foreign Investment in Postwar Japan: Materisk fir a Course in ComparativeLaw, XII, 389-397.

Notes Bibliography Index

Notes Introduction 1. Foreign direct investment denotes investment from one country into another, in which the investor acquires a stake in a business enterprise in that other country sufficient to exercise injluence over the management of that enterprise. The definition of the minimum percentage of ownership judged adequate to wield such influence has varied over time and by measuring agency, but generally has fallen between 10% and 25%. A foreign investment whose proportion of ownership in a foreign enterprise amounts to less than the minimum percentage deemed necessary to wield such influence, on the other hand, constitutes aportfolio investment. Unless otherwise noted in this book, foreign investment refers to foreign direct investment. In addition, Japanese policies towards FDI in this study refer to policies towards inward direct investment, that is, policies towards direct investment into Japan from external sources. 2. For U.S. Commerce Department data from 1929, see Note to Figure 1. Although the Commerce Department does not provide adequately disaggregated FDI data for the pre-1929 period, available evidence suggests that Japan also ranked well below these other countries as host to accumulated amounts of U.S. FDI during the period 1899-1929. See, for example, the relevant historical discussion of U.S. FDI worldwide in Mira Wilkins, The Emergence of Multinational Enterprise and The Maturing of Multinational Entelprise, as compared to accounts of early U.S. FDI in Japan noted in, for example, Nihon Kagya Ginka (Industrial Bank of Japan), Gaikoku kisha no honpa tashi (Investments by foreign companies in Japan), pp. 12-13, 15, 18-19, 21. 3. In comparison with other Asian economies, for instance, in 1929 Japan ranked 4th- behind China, the Netherlands East Indies, and the Philippines-as host to total stocks of American direct investment. U.S. Department of Commerce, Office of Business Economics, US. Business Investments in Foreign Countries:A Supplement to the Survey of Current Business, p. 92. Indeed, not until 1963 did Japan rank 1st among Asian nations as host to total stocks of U.S. direct investment abroad. U.S. Department of Commerce, Bureau of Economic Anal-

Notes to Pages 1-6 ysis, Selected Data on US. Direct Investment Abroad, 1950-76, p. 14. 4. U.S. Department of Commerce, Bureau of Economic Analysis, US. Direct Investment Abroad: Balance of Payments and Direct Investment Position Estimates, 1977-81 (Wash., D.C.: GPO, 1986), p. 4. Looked at in a different way, Japan accounted for just 0.8% of total U.S. direct investment in 1929, 0.4% in 1943, 0.2% in 1950, 0.8% in 1960, 2.0% in 1970, and 2.9% in 1980. See U.S. Department of Commerce, Office of Business Economics, US. Business Investments in Foreign Countries: A Supplement to the Survey of Current Business, p. 92; U.S. Department of Commerce, Survey of Current Business, various issues; United States, Economic Report of the President, 1982, p. 355. 5. Udagawa Masaru, "Business Management and Foreign-Affiliated Companies in Japan Before World War 11," in Yuzawa Takeshi and Udagawa Masaru, eds. Foreign Business in Japan Before World War 11, p. 26. 6. Ozawa Terutomo, "Japanese Policy toward Foreign Multinationals: Implications for Trade and Competitiveness," p. 147. 7. James C. Abegglen and George Stalk, Jr., Kaisha: fie Japanese Corporation, p. 217. 8. Look Japan, Taking on Japan: How 18 Foreign Companies Compete in the World's Second Largest Market, p. ix. 9. Only Victor Talking Machine represents a partial exception to this criterion. Although Victor was an experienced international investor when it entered Japan in 1927, the company operated as part of a major U.S.-based multinational only after its acquisition by RCA in 1929. (See below.) 10. Similar to the practice of the U.S. Department of Commerce, American automobile-assembly plants are counted as manufacturing investments in this study, as are the prewar assembly operations of other American multinationals such as Singer Sewing Machine. 11. Western Electric and Victor Talking Machine, for example, each occupied major positions in the prewar Japanese telephone and phonograph industries, respectively. Ford and General Motors together held in excess of 95% of the Japanese motor-vehicle market at the start of the prewar period in which they are scrutinized. Similarly, IBM and Otis occupied dominant positions in the Japanese tabulating-machine and elevator industries, respectively, after World War 11. Coca-Cola achieved a preeminent position in the postwar Japanese soft-drink market, and Texas Instruments managed to sell significant quantities of integrated circuits from the first foreign semiconductor factory ever established in Japan. Indeed, in relevant periods these 8 American companies have been celebrated by Japanese and non-Japanese observers alike as outstanding success stories which other foreign firms should carefully study so that they too might achieve similar "success" in Japan. Countless official Japanese statements, for example, cite IBM, Coca-Cola, and Texas Instruments as model foreign direct investors in Japan.

Notes to Pages 8-18 And contemporary Japanese business and government statements and actions implicitly acknowledged the success of Western Electric, Victor Talking Machine, Ford, General Motors and Otis Elevator in their respective industries during the period they are here scrutinized. 12. At least 3 other reasons-all largely fortuitous-also made the year 1980 a fitting endpoint for this history. First, it was in 1980 that Motorola-the last of the major case study firms-finally managed to invest in a Japanese semiconductor company after many discouraging attempts. Second, 1980 also marked the year when Ford-the very first direct investor examined in this study-succeeded in re-entering the Japanese motor vehicle industry as a direct investor. And third, 1980 marked the last year that U.S. FDI in Japan exceeded Japanese FDI in the

us. Prologue: T h e O u t e r Gates, Origins t o 1899 1. A limited number of Chinese merchants constituted the very first foreign business enterprise in Japan. These merchants, who resided principally in Nagasaki to facilitate Sino-Japanese trade, were permitted to remain in limited numbers even after the general closure of Japan to foreign intercourse in the mid-17th century. Payson Treat, B e Early Diplomatic Relations Between the United States and Japan, 1853-1865, pp. 2-4ff. 2. Edwin 0. Reischauer et al., Japan: Tradition and Transformation, p. 89. Hirado is a small Japanese island located off the coast of Kyushu. 3. Ludwig Riess, "History of the English Factory at Hirado (1613-1622)," pp. 14-15, 36-39,212-215; Edwin Reischauer, p. 89. 4. Treat, Early Diplomatic Relations, pp. 2-4ff. 5. O n early U.S. commercial rights in Japan, see United States-Japanese Treaty of Amity and Commerce of 1858, in U.S. Department of State, Treaties and Other International Agreements of the United States of America, 1776-1949, M, 362-372. 6. Eldon Griffin, Clippers and Consuls: American Consular and Commercial Relations with Eastern Asia, 1845-1860, p. 322; U.S. Department of State, Reports from the Consuls of the United States on the Commerce, Manufactures, etc., of their Consular District i n Japan, pp. 7-8. 7. Grace Fox, Britain and Japan, 1858-1883, pp. 313-3186 8. Unno Fukuju, Me& no b6eki (Trade in Meiji), pp. 48-56ff. 9. Sakatani Yoshir.6, "Introduction of Foreign Capital," p. 401. 10. Ibid. 11. As cited in Okita Saburo et al., "Treatment of Foreign Capital," p. 141. 12. O n Japanese treatment of FDI outside the Treaty Settlements, see, for example, B e Japan Weekly Mail, 5 February and 16 July 1898, and 14 January 1899.

Notes to Pages 18-22 13. O n one noted instance of British direct investment in Meiji Japan, see John McMaster, "The Takashima Mine: British Capital and Japanese Industrialization" in Business History Review 37.3:217-239 (Autumn 1963). 14. Horie Yasuz8, Gaishi yunyii no kaiko to tenbfi, pp. 24-40.

ONE

The Door Ajar, 1899-1930

1. The European nations were Great Britain, France, Germany, Russia, Austria, Italy, Spain, Portugal, Belgium, Holland, Sweden, Norway and Switzerland. In addition, the South American republic of Peru had several similar privileges through its revised treaty with Japan. The New York Times, 17 July 1899. 2. There were some differences between the U.S. and European treaties. Compared to the British treaty with Japan, for example, the U.S. accord had a somewhat broader limiting clause relating to the freedoms of trade and residence, and the most-favored-nation clause was conditional rather than absolute. Francis Jones, Extraterritoriality i n Japan, p. 157. 3. U.S. Department of State, Treaties and Other International Agreements of the United States ofAmerica, 1776-1949, M, 387-388. 4. See, for example, the revised U.S.-Japan Treaty of 1911, as cited in ibid., pp. 417-419. 5. These revised domestic measures created a legal environment that allowed the foreign direct investor to enjoy many of the same rights and protections as Japanese-controlled companies. "Take it all around," the noted prewar legal scholar Joseph de Becker concluded in a lengthy analysis of the revised Japanese Commercial Code, "the Japanese Law is very fair to foreign corporations." Joseph de Becker, Commentary on the Commercial Code of Japan, p. 377. 6. Remarks of Baron Ozaki, Chairman of the Economic Research Association (Keizai Kenkytikai), as cited in The Japan Weekly Mail, 12 August 1899, p. 161. 7. Ibid., p. 165. 8. Ibid., p. 161. 9. U.S. Department of State, Special Consular Reports 61.229:285-286 (October 1899). 10. William W. Lockwood, The Economic Development of Japan: Growth and Structural Change, 1868-1938, pp. 539-541. 11. Nor did the list of motives for American companies to directly invest in early-20th-centuryJapan stop there. Some U.S. firms, for example, calculated that they could save significantly on transportation costs, improve local distribution through direct control of Japanese distribution operations, or improve their local position by jointly sharing ownership of a local plant with influential Japanese companies. Still others were motivated for reasons of classic oligopolistic competition: Once a major competitor had entered Japan, these companies followed

Notes to Pages 22-27 to minimize the danger that their chief rivals might achieve a substantial advantage in the local market. Additional incentives included periodic acute Japanese demand for foreign capital, such as that experienced during the economic boom from the close of World War I, and the years of economic reconstruction following the devastation of the 1923 Great Kanto Earthquake. America's investments in Japan, moreover, were part of a broader expansion of U.S. business abroad which had begun well before the turn of the century. See, in particular, Mira Wilkins, The Emergence of Multinational Enterprise. 12. See Mark Mason, "Foreign Direct Investment and Japanese Economic Development," pp. 97ff. Otis Elevator first set up a manufacturing plant in the early 1930s, but had entered into joint venture talks with Mitsui & Co. from the turn of the decade. See Chapter 3. 13. As cited in Ernest W. Clement, A Handbook of Modern Japan, p. 40. 14. See, for example, the 1913 comments of Finance Minister Takahashi before the Osaka Bankers' Club, as cited in The Japan Weekly Mail, 10 May 1913. 15. As cited in The Japan Weekly Mail, 1 February 1913. 16. Alien Land of Japan, Law No. 42 of 1925, effective from November 1926, as cited in RG 59, Doc. No. 894.5200/1. 17. de Becker, Commentary on the Commercial Code, p. vii; Noda Uichi Papers, Ministry of Finance "Status of Foreign Nationals (principally in the Economic Field)," pp. 10, 17-18; Horie Yasuz6, Gaishi yunyii no kaiko to tenbti, p. 95; The Japan Weekly Mail, 14 February 1905, p. 115. 18. William Van Zandt, "The Opening of Japan in 1899," in Kokusai denshin denwa, pp. 34-35. 19. Sakatani, p. 402. 20. IBJ, The TO-Ear History of the Industrial Bank of Japan, pp. 23-24, as cited in Okita, pp. 144-145. 21. See Mark Mason, "United States Direct Investment in Japan: Studies in Government Policy and Corporate Strategy," Chapter 1. 22. United States Department of State, Commercial Relations of the United States, 1902, I, 958-959. 23. Ibid. 24. E. M. Barton "The Story of the Western Electric Company," Parts I and 11, April 1912, pp. 1-3 and May 1912, pp. 1-3; W. E. Leigh "Some Features of Our Foreign Business As It Is To-Day," October 1913, pp. 1-3; G. E. Pingree "Our Foreign Business," November 1919-all in Western Electric News. The following account of Western Electric in Japan was first published in modified form in Mark Mason, 'With Reservations: Prewar Japan as Host to Western Electric and ITT," in Yuzawa Takeshi and Udagawa Masaru, eds., Foreign Business i n Japan Before World War II, pp. 175-192. 25. NEC, NEC Corporation: The First 80 Ears, p. 3; Frederick L. Rhodes, John J. Carty: A n Appreciation, pp. 196-198; D. F. Elliot, "Twenty-Five Years of Success-

Notes to Pages 28-33

ful Cooperation in Japan," Electrical Communication, October 1923, p. 95; "Each in His Dearest Tonguey'Bell Elqhone Quarterly 16:184-185 (1937). 26. NEC, NEC Corporation, pp. 3-4. 27. MOC was established in 1885. 28. D. F. Elliot, "Twenty-five Years," pp. 95-96; K. Iwadare, !'A History of the Nippon Denki Kabushiki Kaisha," Western Electric News, March 1914, p. 1. 29. Letter, Thayer to Welles, 28 January 1897, ATT Archives, Box 1134. 30. Autobiographical sketch of K. Iwadare, 15 May 1919, Edison Pioneers Records; Interview with one of Iwadare's sons, Tokyo, 1965, from the files of Mira Wilkins; D. F. Elliot "Twenty-five Years," pp. 95-98. The silk house Bavier & Company in September 1877 had gained an exclusive license from Alexander Graham Bell to first import telephones into Japan and China. ATT Archives, Boxes 1122. 31. Letter, Sabin to French, 22 May 1896, Box 1134, ATT Archives. 32. Various correspondence, Box 1134, ATT Archives. 33. San Francisco Call, 17 May 1896. 34. Letter, Barton to Welles, 18 June 1896, ATT Archives, Box 1134. 35. Letter, Thayer to Welles, 14 January 1897, ATT Archives, Box 1134. 36. Letter, Thayer to Hudson, 18 April 1898, ATT Archives, Box 1139. 37. Ibid. 38. At the time of the negotiations, Oki had already entered into arrangements with Western Electric to assemble and repair in Japan certain of the American company's exports to that market. See Hayashi Masayuki, "Senzen ni okeru amerika takokuseki kigya no nihon shinshutsu," Kdnan ronsha 5:42 (March 1977). 39. Letter, Thayer to Hudson, 18 April 1898, ATT Archives, Box 1139. 40. NEC NEC Corporation, p. 5. O n the negotiations, see, in particular, Chokki Toshiaki "Nihon no kigya keiei no kindaika to gaishi teikei kaishameiji jidai no denki kikai kagya ni okeru mittsu no jirei" (The modernization of Japanese management and foreign joint ventures-Three cases from the electrical-machinery industry of the Meiji period), Keiei shirin 17.4:118-119 (January 1981). 41. NEC, NEC Corporation, pp. 2, 5-8. 42. According to one source, still greater quantities of funds were expended, for "further money was granted from time to time, and a considerably larger amount [than the 20 million yen] was spent." D. F. Elliot, "Twenty-five Years," p. 103. 43. NEC, NEC Corporation, pp. 12, 15. 44. Ibid., pp. 15-16; Iwadare Kunihiko, "A History of the Nippon Denki Kabushiki Kaisha," Western Electric News, March 1914, p. 1. 45. "Only Lucky Have Telephones in Japan," The Northwestern Bell, June 1924, pp. 1-3. 46. "Hawthorne Engineer Writes Interesting Letter from Japan," Western Electric News, 1923, p. 21.

Notes to Pages 33-38 47, Letter, Thayer to Condict, 8 April 1908, Western Electric Archives, from the files of Mira Wilkins. 48. NEC, NEC Corporation, pp. 8-9. 49, Ibid., p. 16. 50, D. F. Elliot, "Twenty-five Years," p. 101. 51. NEC, NEC Corporation, pp. 22-24. 52, D. F. Elliot, "Twenty-five Years," p. 109; RG 151, Box 46, Special Report No. 17. 53. Western Electric Company, President's Report f i r the Yedr Ending November 30, 1909, p. 13, Box 1380, ATT Archives. 54. "Historical Statistics," Box 265, ATT Archives. 55. Charles Du Bois, "The Foreign Business of the Western Electric Company," August 1923, ATT Archives, Box 46; "Historical Statistics': Box 265, ATT Archives. 56. D. F. Elliot "Twenty Five Years," p. 106. 57. NEC, NEC Corporation, p. 11. 58. The term phonograph industry here signifies the industry that deals with both records and record players. 59. Nihon Koromubiya, Nihon Koromubiya gojiinenshi; RG 59, Boyce to Secretary of State, 26 February 1932. 60. Nihon Koromubiya, Nihon Koromubiya gojiinenshi. The Japanese name was Nichibei Chikuonki S e i z ~ . 61. Ibid. The Japanese name was Nihon Chikuonki Shbkai. 62. The Japanese name was Gadb Chikuonki. 63. Geoffrey Jones "The Gramophone Company: An Anglo-American Multinational, 1898-1931," pp. 80-81. 64. Ibid., p. 84. 65. Ibid., pp. 92-94. 66. Victor Talking Machine Company, Annual Report, 1927; RCA, Annual Report, 1929. 67. Nihon Bikuta, Nihon Bikutii gojiinen shi, p. 46. 68. RG 59, "American Assistance in Expansion of Japanese Exports to the United States," excerpt appended to dispatch of Richard Boyce to Secretary of State, February 1937; Victor Company of Japan Corporate Records. 69. Nihon Bikut~,p. 46. 70. RG 59, Victor Talking Machine Company to Secretary of State, July 1916; Nihon Kagya Ginkb (Industrial Bank of Japan) Gaikoku k'aisha no honpa tashi, p. 196. 71. The tariff rate on phonographs was reduced to 50% and on related accessories to somewhat lower levels on 29 March 1926, but its impact on imports remained great nonetheless. Okurasha (Ministry of Finance), Kanzeiritsu enkaku: nihon kanzei, zeikanshi shivs 11(A history of tariff rates: Japanese tariffs, cus-

Notes to Pages 38-46 toms materials II), p. 168; Morimoto Toshikatsu, Onban kayashi (A history of popular recordings), p. 15. The Japanese name of the law was Shashihin no yunyiizei ni kansum h~ritsu,Law No. 24 of 1924. 72. This share was increased to 67% two years later. 73. The Japanese name was Nihon Koromubiya Chikuonki. 74. Nihon Kagyb G i n k ~(Industrial Bank of Japan), Gaikoku kaisha no honpa tashi, pp. 1816. 75. Nihon Bikutfi, p. 49. 76. RG 59, Charles MacVeagh to U.S. Secretary of State, 11 August 1927. 77. Ibid., pp. 51-53. 78. Nihon Bikut~,p. 58. 79. Interview with Momose Hitoshi, 1965, from the files of Mira Wilkins. Victor's decision to sell part of its equity to Japanese interests was apparently in line with the company's policy at that time to include local ownership in its overseas enterprises. Nihon B i k u t ~p. 57. 80. Nihon Kbgy6 Ginka (Industrial Bank of Japan), Gaikoku kaisha no honpa t6shi, p. 206; Victor Company of Japan Corporate Records. 81. Victor Company of Japan Corporate Records and RG 331, Box 3815. 82. Nihon Kagyb G i n k ~(Industrial Bank of Japan), Gaikoku kaisha no honpa tashi, pp. 205-207. 83. Victor Company of Japan Corporate Records. 84. Ibid. 85. Nihon Bikutq p. 58. 86. RG 151, Box 46, "American Branch Factories in Japan"; Victor Company of Japan Corporate Records. 87. Ibid., p. 502; RG 331, Box 3801. 88. Mira Wilkins, The Maturing of Multinational Enterprise: American Business Abroadfrom the Colonial Era to 1914, p. 29; Mira Wilkins, 'American-Japanese Direct Foreign Investment Relationships, 1930-1952," p. 502; RG 331, Box 3798. 89. Gaimusha (Ministry of Foreign Affairs), Nihon ni okem gaikoku shihon (Foreign capital in Japan), pp. 68-69. 90. Nihon Kbgyb Ginka (Industrial Bank of Japan), Gaikoku kaisha no honpa tashi, pp. 12-13; Udagawa Masaru "Business Management and Foreign-Affiliated Companies in Japan Before World War Two" in Yuzawa and Udagawa, pp. 2-12. 91. As cited in Okita, p. 149. 92. Mitsui Bunko (Mitsui corporate archives), "Shitencha kaigi gijiroku" (Minutes of the branch managers' meetings), 1926. 93. U.S. Department of Commerce, Bureau of Foreign and Domestic Commerce, American Direct Investments in Foreign Countries, 1929, p. 26. 94. As cited in Harold G. Moulton et al., Japan: An Economic and Financial Appraisal, pp. 507-533. 95. See, for example, Bank of Japan, Hundred-Ear Statistics of theJapanese Econ-

Notes to Pages 46-52 omy: Supplement, p. 161. William Lockwood, the noted economic historian, estimated that total stocks of FDI in Japan stood at between $75 and $100 million in 1934. William W. Lockwood, Z%e Economic Development of Japan: Growth and Structural Change, 1868-1938, p. 260. 96. Mark Mason, "Foreign Direct Investment," pp. 95-96.

TWO

The Sliding Door, 1930-1940

1. See, for example, George C. Allen, Japan's Economic Expznsion, Chapter 1. Japan's "dual economy" refers to the nation's two contrasting spheres of economic activity during its growth years. One sphere generally encompassed the larger, relatively modernized, and more efficient industries; the other sphere generally encompassed the smaller, relatively backward, and less efficient industries. 2. Forbes 37.3:10 (1 February 1936). 3. Hugh Patrick and Henry Rosovsky, eds., Asia's New Giant, p. 8. 4. Tsunoda Ryusaku et al., comps., Sources of Japanese Tradition, 11, 279. 5. See, for example, Okawa Shumei, The Way ofJapan and the Japanese, as cited in Tsunoda, 11, 288-289. 6. See Kazuki Tamotsu, 'Wagakuni ni okeru gaikoku kaisha enmachd' (Secret .report card on foreign capital companies in Japan), in Bungei shunj~,February 1932, p. 76ff. 7. Yori Haruo, Gaikoku shihon to nihon no sangy8: Shihon no shihai o htaru, p. 37 8. See, for example, the discussion in Udagawa Masaru, "Business Management and Foreign-Affiliated Companies in Japan Before World War 11," in Yuzawa Takeshi et al., eds., Foreign Btlsiness in Japan Before World War Two, pp. 22ff. 9. Idei Seishi, Gaishi dcnyii no kihon chishiki, p. 217. 10. In 1938, for example, the Japanese subsidiary of Singer Sewing Machine was the target of repeated slanders in the local media which were clearly supported by the local sewing-machine industry. One such article combined attacks on Singer with nationalistic appeals to Japanese Singer employees to leave the company and join domestic firms. "There are now only two paths left for the Uapanese] Singer sales people to take: One is to continue their present lethargy only to await their death, the other its to take the path to life outside the pale of the Singer Sewing Machine Company. . . . Even in the veins o f . . . salesmen who pass their time in constant fear and awe under the vigilance of their supervisors, who work after the fashion of the Kuomintang secret service, Japanese blood must surely be running. We, therefore, strongly urge them to act quickly and deal in domestic sewing machines instead of waiting passively for their miserable fate. Otherwise, they will have to repent when it is too late." Nippon saiha mishin shinbun (The Japan sewing-machine newspaper), 15 June 1938, as quoted in Japanese Ministry of Foreign Affairs Archives.

Notes to Pages 52-55 11. Mark Mason, 'With Reservations: Prewar Japan as Host to Western Electric and ITT," in Yuzawa and Udagawa, p. 187. 12. Jin-Mieung Li, "Mir Liquide, Pioneer of French Industrial Presence in Japan Between 1910 and 1945," in Yuzawa and Udagawa, p. 231. 13. RG 59, Memorandum of Conversation, Grew to Secretary of State, 28 June 1932. The American director represented GM Japan. 14. Ibid. 15. These laws are precisely the same set of measures that Chalmers Johnson has called "industry-specific development laws2'-the primary legal basis of industrial control during the 1930s. Chalmers Johnson, MITI and the Japanese Miracle, pp. 132-133. With the exception of the automobile law, none of these measures dealt with industries in which there was substantial FDI. Still, it is possible that foreign companies might have invested in these industries in the absence of such restrictive legislation. 16. Law No. 47 of 1933. The article includes an exceptions clause, but only when "specified by Imperial Ordinance and granted special permission by the competent Minister." 17. For details of the petroleum industry law and its implementation, see Irvine H. Anderson, G e Standard-Wcuum Oil Company and United States East Asian Policy, 1933-1941, Chapter 3. 18.Jiddsha seizb gyd hd, Law No. 33 of 1936. 19. 'Tersons qualified to receive licenses," the law read, "shall be only jointstock companies organized under Japanese law of which more than one-half of the shareholders, more than one-half of the directors, more than one-half of the capital, and more than one-half of the voting rights are or are held by Japanese subjects or juridical persons organized under Japanese law. The juridical persons mentioned in the preceding paragraph must be juridical persons of which more than one-half of the members, shareholders, or officers in charge of conducting business and more than one-half of the amount of capital or more than one-half of the voting rights are not or do not belong to foreigners or foreign juridical persons." Ibid. 20. Artificial Petroleum Manufacturing Industry Law Uinzb sekiyu seizd jigyb h6), Law No. 52 of 1937. 21. Kdsaku kikai seiza jigyd ha and Kakiiki seizb jigyd ha, Law No. 40 of 1938, and Law No. 41 of 1938, respectively. 22. Law No. 70, and Law No. 88, respectively, both of 1939. 23. For example, the government in 1940 explicitly restricted foreign capital participation in firms engaged in the production of goods based on organic synthesis. The Organic Synthesis Manufacturing Industry Law (Yiiki gbsei jigyb hd), Law No. 96 of 1940. 24. Many other countries, of course, also passed foreign-exchange control legislation in the 1930s.

Notes to Pages 55-57 25. The government did, however, impose a gold embargo in 1917, and again in 1931, to stabilize the value of the yen. 26. Shihon tohi bashi ha, Law No. 17 of 1932. 27. Ibid. 28. The primary purpose of the law, however, was to prevent speculative purchases of foreign currency by Japanese exporters and others who were driving down the value of the yen in international markets. 29. Gaikoku kawase kanri ha, Law No. 28 of 1933. 30. William Sebald, A Selection of Japan's Emergency Legislation, p. 1. 31. MOF Ordinance Nos. 12 and 13 of 1932, as cited in Midorikawa Mitsuo, Shihon toshi bashi ha no kaishaku to un-ya, p. 5. 32. Article 3 of the main ordinance, for example, defined the scope of authority vested in MOF under the law in the following terms: "Except with the permission of the Minister of Finance the following transactions or acts may not be performed: 1. The purchase, with Japanese currency as a consideration, of foreign currency, foreign exchange, or yen exchange drawn on localities where Japanese currency is legal tender; 2. The sale of foreign exchange, with Japanese currency as a consideration, to parties other than foreign-exchangebanks or with the object of setting off the same against exchange bought. . . ." MOF Ordinance No. 7 of 1933, as cited in Sebald, p. 7. Official requests for foreign-exchange transactions were to be submitted to MOF through the Bank of Japan: 'Tersons desiring to obtain the permission of the Minister of Finance for transactions or acts under the provisions of In re Ordinance Based on the Foreign Exchange Control Law. . . shall file with the Minister of Finance an application in duplicate for permission according to the provisions of this Ordinance through the nearest office of the Bank of Japan." However, the ordinance continued, "when for business or other reasons it would be of considerable inconvenience to obtain permission for each particular transaction or act by following the procedure provided for in the preceding paragraph, a statement of the circumstances may be submitted to the Minister of Finance and special procedure may be specified by the Minister of Finance." Article 1, Procedure for Enforcement re the Foreign Exchange Control Law (MOF Ordinance No. 8, 1933), as cited in Ibid. p. 27. 33. MOF Ordinance No. 1 of 1937, as cited in Tsashb Sangyb Sh6, ed. Shaka seisaku shi (History of commercial and industrial policy), VX, 219, 286-287. See also, okurashq Kokusai kin-ye, bcieki in S h ~ zaisei a shi (History of S h ~ w a financial policy), XIII, 128ff., 260-267. 34. Yushutsunyii bin to ni kansuru rinji sochi ni kansuru haritsu, Law No. 92 of 1937, as cited in Sebald, pp. 143ff. 35. Ibid. p. 143. As Johnson has noted, the law was, in effect, "a grant of dis-

Notes to Pages 57-58 cretionary power to MCI to control everything if it so chose." Johnson, p. 136. 36. MCI Ordinance No. 23 of 1937, as cited in Sebald, pp. 146ff., 150-158. 37. Indeed, passage of the far-reaching yet ill-defined National General Mobilization Law (Kokka s~d6inhs) that same year amounted to a "carte blanche" for the government in practically every sphere of activity, economic and otherwise. Law No. 55 of 1938. See Johnson, p. 139. 38. The 6 U.S. firms were Standard-Vacuum Oil, B. F. Goodrich, Victor Talking Machine, Ford, IBM, and Singer Sewing Machine. RG 59, "The Fiscal Position of American Companies in Japan at the Beginning of 1939," 14 January 1939. 39. Ibid. 40. Ibid. 41. Ibid. 42. Joseph Grew, Ten Ears in Japan, pp. 41-42. 43. RG 59, Grew to Secretary of State, 22 May 1933. According to one Japanese source, there were 4 reasons for this strike: The American managers failed to give employees severance pay upon dismissal; 3 of the 5 key managerial positions were held by Americans; the U.S. directors had a "superior" attitude; and the employees suspected that the company might be "a type of spy organ" because it had received no requests for goods from the military. See Yatsugi Kazuo, "Senzen gaishi keiei kaja ni okotta sutoraiki no re?' (Examples of strikes that occurred in foreign-managed factories before World War 11), in R s d ~ssgi hiroku (Secret accounts of labor strikes), pp. 409-411. R. F. Moss, the President of the 80% American-owned company, on the other hand, believed the strike was caused by "the effect of general anti-American propaganda and the feeling that the American officials were paid too high salaries." RG 84: Records of the Foreign Service Posts of the Department of State, Japan, Confidential File, 1933, Vol. XIV. 44. MFA Archives, Takeyama Yasujira to Minister of Foreign Affairs et al., 28 October 1939. 45. Elements of the Japanese press proved particularly malicious towards U.S. companies in Japan. The treatment accorded the American oil firm SoconyVacuum, as recounted by Ambassador Grew, is one such example: "In April, 1933, the SoconyVacuum Corporation was widely accused in the Japanese newspapers of espionage and conspiracy against Japan, in that Mr. McAdam, an alleged director of the Standard Oil company of New York, took photographs of strategic places, travelled through fortified zones, went to Kii (Wakayama-ken) to arrange for the establishment of a refinery in a fortified zone there, et cetera. Mr. McAdam is a travelling auditor of the SoconyVacuum Corporation, not a director; he has taken no photographs in Japan; he has never been in Kii Province; and the Corporation had never had and has not now any intention of building a refinery in Kii Province. Otherwise the story is true." Grew to Secretary of State, 22 May 1933, RG 59, Box 4566.

Notes to Pages 58-63 46. RG 59, Grew to Secretary of State, 22 May 1933. 47. Johnson, p. 104 48. Tokyo Institute of Political and Economic Research, "The Control of Industry in Japan," p. 258. 49. Japan National Archives, various pamphlets: RG 59, various dispatches, 1930-1931. 50. Home goods the official had in mind included those produced by "certain industries in Japan which are already fully developed but whose products have unfortunately been up to now neglected by the nation." As quoted in The Japan Times, 21 July 1930. 51. Tokyo Institute of Political and Economic Research, "The Control of Industry in Japan," p. 258. 52. RG 59, Dispatch from Tokyo of 21 July 1930 and subsequent communications; RG 151, various reports from the U.S. Trade Commissioner in Tokyo. 53. Ibid. 54. The Japanese authorities apparently placed fewer impediments in the way of German and certain other foreign direct investments in the 1930s. Differences in treatment by nationality naturally became more pronounced after the start of World War 11. See Mark Mason, "United States Direct Investment in Japan: Studies in Government Policy and Corporate Strategy," Chapter 5. 55. William Duncan, U.S.-Japan Automobile Diplomacy: A Study in Economic Confrontation, p. 55. 56. Jidssha Kbgy6 Shinkskai, ed., Nihon jidiisha k ~ g shi y ~kdj~tsukiroku sha, in Jidiisha shiv5 shiri>u, 11, 51. 57. Ibid. p. 56. 58. Yakushiji Taizo, "The Government in a Policy Dilemma: Dynamic Policy Interventions vis-A-vis Auto Firms, c. 1900-c. 1960," in M. Aoki, ed., The Economic Analysis of the Japanese Fimz, p. 269. 59. Gun-ysjid?isha hojo h6, as cited in Duncan, Automobile Diplomacy, p. 58. 60. Ibid. p. 59. Ishikawajima Shipbuilding set up the independent Ishikawajima Motors in 1927. The Kaishin Company amalgamated with J i t s u y ~Motors in 1926 to become DAT Motors. Yakushiji, "The Government in a Spiral Dilemma," p. 269. 61. U.S. Department of Commerce, Bureau of Foreign and Domestic Commerce, Japan as an Automotive Market in Special Agent Series No. 217, 1922, p. 30ff. 62. RG 151, Box 46, "American Branch Factories in Japan." . 63. Jid6sha K ~ g y 6Shinkskai, Sekai no jid~sha nenpyo, p. 417, Jidssha Ksgya Shinkskai, Nihon Jidasha k ~ g shi p k~jutsukiroku s h ~I,, 4. 64. Yanagida Rydzq Jidasha sanj~nenshi, p. 15. 65. Ibid., pp. 15-16. 66. U.S. Department of Commerce, Bureau of Foreign and Domestic Commerce, Japan as an Automotive Market, Special Agents Series 217:42 (1922).

Notes to Pages 63-68

67. Ibid., p. 4. 68. Ibid., p. 48. 69. "Possibilities that Lie in the Far East," Automobile Topics 68, 10:1033 (20 January 1923). 70. Ibid., p. 1034. 71. Mira Wilkins and Frank Hill, American Business Abroad: Ford on Six Continents, pp. 14-18, 434-435. 72. Fad6 Jid6sha (Nihon) (Ford Motor uapan]), Ford, p. 3; Yanagida, p. 18. 73. Yanagida, p. 18. 74. The Ford Times, September 1911, p. 354, from the files of Mira Wilkins; Yanagida, p. 18. 75. Accession 285, Box 196, FMC Archives; Interview with V. A. Dodge, November 1960, both from the files of Mira Wilkins; Yanagida, p. 18. 76. Fortune 32:136 (November 1945). 77. ?;be Ford Times 4:228 (April 1911), from the files of Mira Wilkins. 78. Duncan, p. 60. 79. Accession 285, Box 196, FMC Archives, from the files of Mira Wilkins. 80. Ibid. 81. Yanagida, p. 95. 82. MFA Archives, Ota Masahiro to Wakatsuki Reijir6 et al. 16 February 1925; Wilkins, American Business Abroad, p. 110; Yanagida, p. 97. 83. FMC Archives, Reminiscences of Robert Roberge, from the files of Mira Wilkins; Wilkins, American Business Abroad, p. 150. 84. FMC Archives, Reminiscences of Robert Roberge, notes from the files of Mira Wilkins. 85. Ibid. 86. MFA Archives, Ota Masahiro to Wakatsuki Reijira et al., 16 February 1925. 87. FMC Archives, Reminiscences of Robert Roberge, from the files of Mira Wilkins. 88. Nihon Has6 Kyakai (NHK) "Dokyumento Sh~wa"Shuzaihan (NHK "Shawa Document" Committee), Dokyumento s h ~ 3:aAmerikasha j6riku oo soshi seyo (Showa document 3: Stop the landing of the American cars!), p. 16; ibid. 89. FMC Archives, Reminiscences of Robert Roberge, notes from the files of Mira Wilkins. 90. FMC Archives, Letter, Roberge to Craig, 27 December 1924. 91. RG 331, Box 3795. 92. FMC Archives, Acession 363, Box 1, from the files of Mira Wilkins; FMC Archives, letter from Tom Lilley to the Minister of Finance, 21 October 1958. 93. MFA Archives, Ota Masahiro to Wakatsuki Reijirb et al., 16 February 1925. 94. MFA Archives, various communications. 95. Ibid.

Notes to Pages 68-71

96. MFA Archives, Nakagawa Nozomi to Hamaguchi Osachi et al., 12 October 1926. 97. MFA Archives, Yamagata Jirb to Hamaguchi Osachi et al., October 1926. 98. FMC Archives, Reminiscences of Robert Roberge, notes from the files of Mira Wilkins. 99. Abo Tetsuo, "American Automobile Enterprises Abroad During the Interwar Period," pp. 189, 206. 100. General Motors, "Missionaries in the Overseas Markets of Tomorrow," pp. 2fi. 101. Edward Stein, "Motorizing the World," Bawon's, 24 September 1928. 102. Yanagida, p. 98. 103. Author's correspondence with Kasuga Yutaka, Mitsui Archives, 1986. 104. Ibid. 105. Interview with Yanase Jirq Tokyo, 1986; Yanase Jirb, Wadachi (Tire tracks), I, 190; Mitsui Archives, various reports. 106. Yanase Jirq Wadachi, I, 187, 190. 107. Ibid. p. 190. 108. Interview with Suzuki Kanemitsu, Tokyo, 1986. 109. Ibid. 110. Ozaki Masahisa, Jidcjsha nihon shi, I, 130. 111. Ibid., p. 130 112. Ibid. 113. Interview with Suzuki Kanemitsu, Tokyo, 1986. 114. Yanase, I, 193. 115. Interview with Suzuki Kanemitsu, Tokyo, 1986. 116. Yanase, I, 193. 117. The resident directors held nominal amounts of GM Japan stock. MOF Archives; RG 331, Box 3795; Ozaki Masahisa, Jidcjsha nihon shi, I, 131. 118. Indeed, Harry B. Phillips, the Far East Manager for General Motors in the mid-l920s, noted in the opening ceremonies of the GM Osaka plant: "This achievement has only been possible by the whole-hearted co-operation and assistance we have continuously received from the authorities and business men [sic] of Osaka, to whom we are most grateful." fie Japan Weekly Chronicle, 14 August 1927. 119. Chrysler managed to gain a modest share of the motor-vehicle market in prewar Japan. The Dodge, for example, was first imported by Japan Automobile, but in 1927 Anzen Automobile became general importing agent for Dodge Brothers in Japan. Dodge imports began to increase rapidly, which led Anzen to establish with Yaesu Automobile and Aoi Automobile (importer of the Nash) three contiguous facilities in Tsurumi, Yokohama, to assemble imported vehicles from knocked-down kits. The combined plant, called Ky~ritsuAutomobile, was completely owned and operated by Japanese interests. Chrysler's only resident repre-

Notes to Pages 71-74

sentative was Far East Regional Manager Belshaw of Chrysler's Export Division; the rest of the Kyaritsu operation was manned by some 300 Japanese nationals. Kyaritsu was forced to close down in 1938, however, following stringent application of foreign-exchange controls by the Japanese authorities. Virtually all the workers then entered the employ of either Nissan or Toyota. Personal papers of Nakaya Ryahei; Interview with Nakaya Ry6hei, Tokyo, 1986; Udagawa Masaru, "Senzenki no nihon jidasha sangyo," p. 357. 120. Udagawa Masaru, "The Prewar Automobile Industry and American Manufacturers," p. 82. 121. GM Japan Corporate Records, "Summary of Proceedings at General Meeting of Shareholders, General Motors Japan, Ltd."; RG 331, Box 3795; FMC Archives, from the files of Mira Wilkins; Wilkins American Business Abroad, p. 159. 122. Udagawa Masaru, "Senzenki no nihon jidasha sangyb," p. 359. 123. MFA Archives, various communications. 124. Bawon's, 24 September 1928. See, also, D e Japan Weekly Chronicle, 14 August 1927; and Interview with Benjamin Kopf, Mexico City, 1961. 125. See, for example, Richard F. Boyce and H. Merrell Benninghoff to U.S. Embassy, 20 July 1934, RG 84. 126. Udagawa Masaru, "The Prewar Japanese Automobile Industry and American Manufacturers," p. 83. 127. Udagawa Masaru, "Historical Development of the Japanese Automobile Industry, 1917-1971: Business and Government" in Keiei shirin, Hosei University, pp. 32-33. 128. Duncan, p. 64. 129. In Kanagawa prefecture, for example, the annual automobile taxes for a Datsun amounted to 88 yen in the early 1930s, but 440 yen for a Ford car. Exemption from the requirement that drivers obtain licenses for the Datsun and other small Japanese makes was significant, for, according to a U.S. diplomat then stationed in Japan, "the examination for drivers' licenses for operators of standardsized cars is very rigid and requires almost a professional chauffeur's knowledge of mechanics as well as Japanese traffic laws. To the average Japanese this means that the employment of a chauffeur is almost a necessity and of course makes the operation of a car beyond the reach of any but the wealthy classes or a prosperous business." RG 59, Richard Boyce to Secretary of State, "Japanese Automotive Industry," 12 June 1936. 130. The duty on engine imports, however, was changed from a specific fee based on weight to a 35% ad valorem rate, and all duties on French auto-part imports, which had varied under a special bilateral accord, were standardized at 35%. Udagawa, "The Prewar Japanese Automobile Industry," p. 84. 131. RG 59, Ambassador Grew to Secretary of State, 28 June 1932. 132. After hearing about this last piece of advice, contained in a dispatch from the U.S. Embassy in Tokyo to Washington, a U.S. State Department official in

Notes to Pages 74-78 the Office of the Economic Advisor scribbled on the top of the dispatch from Tokyo: "This Japanese definition of the Open Door should not stop short of the President." Ibid. 133. GM acquired the remaining 20% of Ope1 in October 1931. Alfred P. Sloan, My Ears With General Motors, p. 326. 134. Letter, G. K. Howard to R. A. May, 11 August 1933, Aikawa Papers. 135. Ibid. 136. Udagawa, "The Prewar Japanese Automobile Industry," p. 87. 137. Udagawa Masaru, "Nissan zaibatsu no jidbsha sangyb shinshutsu ni tsuite," p. 73. 138. Ibid. 139. Letter, Aikawa G. to R. A. May, Managing Director, GM Japan, 13 July 1933. Aikawa Papers. Emphasis added. 140. For details of the proposed agreement, see Udagawa Masaru, "Nissan zaibatsu," p. 79. 141. By mutual agreement of the two parent organizations, Aikawa was to remit to GM headquarters a payment in dollars equal to the difference between the agreed upon value of 49% of GM Japan and 49% of the Nissan subsidiary. 142. Udagawa, 'Nissan zaibatsu," p. 88. 143. In the words of one former military official, "Cooperation with foreign auto[makers] is not interesting" (Gaisha to no teikei mondai wa omoshiroku nai). Ibid. p. 88. 144. Ibid. pp. 88-92. 145. Negotiations formally ended on 31 December 1934. General Motors, B e War Effoort of the Overseas Division, p. 89, and ibid. p. 92. 146. Udagawa, "The Prewar Japanese Automobile Industry," p. 88. 147. Ibid. p. 90. 148. 'Toints Raised & Explained to Mr. May," 13 July 1935, Aikawa Papers. 149. Ibid., p. 90. 150. Wilkins et al., American Business Abroad, p. 253. 151. RG 59, Boyce to Secretary of State, 26 March 1935; Letter, Crawford to Kopf, 15 October 1935; Letter, Kopf to Craig, 20 December 1935, FMC Archives. 152. Letter, Kopf to Craig, 20 December 1935, FMC Archives. 153. Irvine H. Anderson, 7he Standard-Vacuum Oil Company and United States East Asian Policy, 1933-1941, Chapter 3. Yet even foreign-owned petroleum subsidiaries without domestic refining capabilities would fare relatively well during the 1930s, for these subsidiaries' access to overseas supplies of oil furnished them with important bargaining leverage vis-A-vis the Japanese authorities. See below. 154. Letter, Kopf to Crawford, 8 August 1935, FMC Archives. 155. Ibid.

Notes to Pages 78-81

156. Udagawa Masaru, "The Prewar Japanese Automobile Industry and American Manufacturers," p. 91. 157. Ibid., p. 91. 158. RG 59, Boyce to Secretary of State, 26 March 1935. 159. FMC Archives, from the files of Mira Wilkins. 160. Detroit Free Press, 15 August 1935. 161. "Declaration," 21 April 1935, Joint Union of Yokohama Patriotic Organizations, FMC Archives. 162. RG 59, Boyce to Secretary of State, "Extension of Ford Assembly Plant," 1 August 1935; "Memorandum of Agreement," J. C. Ankeny and Asano Soic h i r ~24 , July 1935, FMC Archives. 163. As cited in Udagawa Masaru, "The Prewar Japanese Automobile Industry and American Manufacturers," p. 91. 164. Interview with Benjamin Kopf, Mexico City, 11 December 1961, from the files of Mira Wilkins. 165. Letter, Kopf to Craig, 18 February 1936, FMC Archives. 166. Interview with Benjamin Kopf, 1961. 167. "Memorandum of Telephone conversation with Mr. Riecks and Mr. Kopf, of Yokohama, Japan," 2 June 1936, Letter, Riecks to Sorenson, 31 July 1935, and Letter, Riecks to Sorenson, 13 August 1936, FMC Archives; Udagawa, "The Prewar Japanese Automobile Industry," p. 93; Wilkins, American Business Abroad, p. 255. 168. Interview with Benjamin Kopf, 1961. 169. Udagawa, "The Prewar Japanese Automobile Industry," p. 85; Author's correspondence. Although MCI officials had long sought to develop a domestic motor-vehicle industry, many initially opposed the Army's aggressive stance. However, following a housecleaning at the Ministry in the autumn of 1935, which placed hardliners in key positions dealing with the industry, MCI endorsed the tougher Army position. NHK "Dokyumento Sh5wa" Shuzaihan Dokyumento shiiwa 3: amerika sha j8riku o soshi seyo, p. 63ff.; RG 59, Grew to Secretary of State, 9 January 1936. 170. Interview with Benjamin Kopf, 1961; RG 84, "The Nisan [sic] Jidosha Kabushiki Kaisha," 17 July 1934; William Chandler U.S.-Japan Automobile Diplomacy, pp. 66-67. 171. William Chandler, U.S.-Japan Automobile Diplomacy, p. 67. 172. Letter, B. Kopf to J. Crawford, 1 September 1938, FMC Archives. 173. Author's correspondence. Indeed, according to Akaboshi Shiro, a Japanese with Imperial Family connections and close ties to numerous Japanese industrialists in the 1930s, Aikawa "has . . . endeavored to move the pass[age] of the 'Ordinance for the Automotive industry."'(See below.) Moreover, at least in Akaboshi's view, Aikawa's "efforts play[ed] a leading part in realizing this ordinance." Letter, Akaboshi Shiro to James A. Moffett, 7 October 1935, NHK Archives.

Notes to Pages 81-89 174. See, for example, F. H. Diehl to Foreign Plants, 6 August 1924, FMC Archives, from the files of Mira Wilkins. 175. RG 84, "The Nisan [sic] Jidosha Kabushiki Kaisha," 17 July 1934. 176. Interview with Benjamin Kopf, 1961. 177. Kamiya Shotarb, My Life With Toyota, pp. 25ff.; Udagawa Masaru, "Japan's Automobile Marketing: Its Introduction, Consolidation, Development and Characteristics," p. 171. 178. Kamiya later became the "god" of car salesmen in Japan and Chairman of Toyota Motor Sales Company. Interview with Suzuki Kanemitsu, 1986. 179. Yanase, I, 195-197; and Udagawa Masaru, "Senzen nihon no kigyb keiei to gaishikei kigy$" Part I. Suzuki Kanemitsu, a former GM Japan executive, remembered when he was asked to leave the American company by a representative of one of the Japanese firms: "In 1934 or '35, a fellow who was working for the Nissan company. . . came over to Kobe to visit me. 'Mr. Suzuki, how about changing your mind and leaving General Motors, and coming to join us at Nissan? I said, 'Mr. Maeda, I'm sorry to tell you, but I came to General Motors in 1927, and I was made an automobile man by General Motors. I owe so much to General Motors, and I can't . . .leave. . . .But if I am released by GM, that is another story: I will ask you to hire me as an automobile man." Interview with Suzuki Kanemitsu, Tokyo, 1986. The activities of Ford and General Motors in Japan also created favorable influences on the structure of the local motor-vehicle industry. Production, distribution, and sales of trucks and cars in Japan had been conducted on a relatively small scale before the entry of the two large American companies. When Ford and GM set up local firms, however, they created much larger operations than had hitherto existed in Japan. These large-scale operations proved to be more efficient and therefore less costly on a per-unit basis than those of the smaller Japanese enterprises. Ford and GM therefore became the "standards" against which any domestic maker would have to compete, and the existence of these tougher "standards" undoubtedly hastened the development of larger, more efficient Japanese companies in the industry. 180. These other measures included, in practice, rising government procurement of cars and, especially, trucks from licensed Japanese motor vehicles. In addition, import duties for motor vehicles and parts were substantially raised following enactment of new tariff legislation in August 1936. The revised rate for cars was set at 70%, and 60% for parts. Japan Okurash~,Kanzeiritsu enkaku: Nihon kanzei, zeikanshi s h i v 11,pp. 172-175. 181. Udagawa, "Historical Development of the Japanese Automobile Industry," p. 36. 182. Ibid. p. 94; Letter, Kopf to Crawford, 22 September 1936, from the files of Mira Wilkins. The production quotas were based on the average annual vehicle output of each firm from 10 August 1932 to 9 August 1935. Interestingly,

Notes to Pages 89-92 when drafting the measure the authorities borrowed ideas not only from the Petroleum Industry Law of 1934, but also from German control legislation dealing with that country's automobile industry. Kogane Yoshiteru Papers, MITI Archives. 183. Author's correspondence with Mira Wilkins. 184. Figure 8 is based on the following data pertaining to the supply of motor vehicles in Japan: Year

Ford Japan

GM Japan

Nissan

Toyota

Notes: Figures include both cars and trucks. GM's output was about half cars and half trucks through 1938. In 1939, however, truck assemblies increased in proportion to about 60% of all GM production in Japan. Ford produced and sold more cars than trucks in Japan during the prewar period as a whole. Totals for General Motors Japan are primarily local assemblies, although a small percentage of the figures for 1936 and 1937 in particular were apparently direct imports of completely built-up units (CBU's). Ford Japan figures for 1934, 1935, and 1939 represent only domestic assemblies, although, in 1937, Ford also imported 3,600 CBU's. Ford figures for 1936, 1938, and 1940 do not represent actual figures, but rather avenges of the preceding and succeeding years; the Ford figure for 1941 is assumed to be zero.

185. Interview with Suzuki Kanemitsu, Tokyo, 1986. 186. General Motors, The War Effort of the Overseas Division, p. 91. 187. Interview with Suzuki Kanemitsu, Tokyo, 1986; Letter, Dithmer to author, 8 August 1986. 188. Craig to Kopf, 28 November 1935, FMC Archives. 189. Letter, J. A. Moffett to Edsel Ford, 31 October 1935, FMC Archives; RG 84, "Memorandum," 12 March 1935. 190. Letter, Kopf to Crawford, 8 August 1935, FMC Archives. 191. Letter, Kopf to Crawford, 22 August 1935, FMC Archives. Nine days earlier, Kopf had called upon the GM subsidiary to join the local Ford organization in opposing the draft auto law: "It seems to me," Kopf had written to GM Japan, "that the present attempt of the Government to freeze out foreign automobile enterprises calls for cooperative action by your Company and mine. I am therefore writing to ask you if you are willing to fight the proposed law jointly and in consultation with us, to safeguard our reciprocal interest . . ."His appeal, however, had little apparent effect. Kopf to May, 13 August 1935, Aikawa Papers. 192. "Memorandum on the visit of Messrs. Caywood and Aspell of the B. F.

Notes to Pages 92-94 Goodrich Rubber Company, to Mr. Ford's Office on October 15, 1936" and Letter, Kopf to Crawford, 22 September 1936, FMC Archives. 193. The deal was contingent on government approval of remittance privileges for Ford to transfer to Detroit all proceeds from the sale. 194. Letter, Assistant to the President, Ford Motor Company to Kopf, 27 January 1937, FMC Archives; Wilkins, American Business Abroad, pp. 255-256. 195. Letter, Kopf to Crawford, 15 July 1937, FMC Archives. Also, given Japan's limited foreign-exchange reserves, MCI presumably would not have been eager to allow Ford to repatriate the large sums involved. 196. "Basis for a merger arrangement between Nissan Automobile Company and Ford Motor Company of Japan, Limited," 22 October 1938, Aikawa Papers. 197. Aikawa apparently took an interest in this merger idea because of production problems at the Nissan plant, heavy military orders which Nissan found difficult to fill, and Aikawa's desire to "keep the production up to date." Letter, Kopf to Crawford, 4 November 1938, FMC Archives. At one point, American political pressure apparently complicated the deal: As relations between the U.S. and Japan deteriorated, Ford managers in Detroit worried about adverse American public reaction if Ford sold a controlling interest in its Yokohama company to Japanese interests. Letter, J. W. Murray to M. Miho, 16 May 1939, Aikawa Papers. 198. Letter, Kopf to Crawford, 4 November 1938, FMC Archives. 199. Letter, Kopf to Crawford, 1 September 1938, FMC Archives. 200. "Agreement," 19 December 1939, and Letter, Kopf to Crawford, 22 December 1939, FMC Archives; Michael Cusumano, irhe Japanese Automobile Industry, pp. 39, 115-116; Udagawa, "The Prewar Japanese Automobile Industry," p. 95. 201. Letter, Ford to Crawford, 15 July 1937, FMC Archives. 202. Letter, Roberge to Department of State, 18 November 1937, FMC Archives. 203. RG 59, Boyce to Grew, 24 March 1938. 204. Ibid. 205. RG 59, "The Fiscal Position of American Companies in Japan at the Beginning of 1939," 14 January 1939; Interview with Benjamin Kopf, 1961. 206. Robert Sobel, RCA, pp. 76-77, 92-97, 99-101, 107; RG 59, Richard F. Boyce to U.S. Secretary of State, January 1937. 207. RG 59, "The Financial Position of American Companies in Japan at the Beginning of 1939," 14 January 1939; Victor Company of Japan Corporate Records. 208. RG 59, Boyce to Secretary of State, January 1937. 209. RG 59, Boyce to Secretary of State, January 1937; RG 331, Box 3809. 210. Nissan by this date already controlled through acquisition the British

Notes to Pages 95-103 Columbia affiliate in Japan. Ibid.; RG 59, "The Fiscal Position of American Companies in Japan in 1939," 14 January 1939. 211. RG 59, "The Fiscal Position of American Companies in Japan at the Beginning of 1939," 14 January 1939. 212. Ibid., pp. 184-185. It is certainly possible that, even in the ITT case, Japanese business influenced the nature of official policy. Existing Japanese manufacturers, such as Oki and Taa, apparently benefited significantly from preferential government policies. And Sumitomo soon gained from its acquisition of NEC stock-an acquisition that became all the more attractive after the renewal of official support for NEC which that transaction brought about. 213. RG 59, "The Fiscal Position of American Companies in Japan at the Beginning of 1939," 14 January 1939. 214. Mira Wilkins, "The Role of U.S. Business," in Dorothy Borg et al., eds., Pearl Harbor as History: Japanese-American Relations, 1931-1941, pp. 362-367. Also see, more generally, Richard J. Samuels, f i e Business of the Japanese State, Chapter 5. 215. Raymond Vernon, Two Hungry Giants, p. 89. 216. Although foreign oil firms could leverage their access to foreign crude oil supplies throughout the decade, Japan's increasing refinery capacity rendered Japan less vulnerable to cutbacks in refined petroleum products imported from abroad. See Mira Wilkins "The Contributions of Foreign Enterprises to Japanese Economic Development," in Yuzawa and Udagawa, pp. 40-42. 217. RG 159, "Conversation," Longley and Dooman, 9 August 1935. 218. RG 59, Grew to Secretary of State, 22 May 1933. 219. As cited in Mira Wilkins, 'Xmerican-Japanese Direct Foreign Investment Relationships, 1930-1952," p. 506.

THREE

The Closed Door, 1940-1950

1. The following discussion generally examines Japanese relations with the United States and other Allied countries during the war, and Allied and most non-aligned countries during the Occupation. Japan's policies and practices towards its wartime Axis partners, Germany and Italy, together with certain nonaligned nations, differed in many respects from the .experiences of investors based in other countries. Still, these latter investors accounted for the vast majority of FDI in Japan during this period. For an account of Japanese policies towards the Axis and other nations during the war and the Occupation, see Mason "United States Direct Investment in Japan," Chapters 5 and 7. 2. Explanatory Note on the Reasons for a Proposal to the Diet of an Enemy Property Control Bill (Ekisan kanri hcian gikai teian riytl setsumei sho), as quoted in Okurash~,Dai niji taisen ni okeru rengcikoku zaisan shori: senji hen, 180-181;

Notes to Pages 103-107 Record of the Inter-MinisterialLiaison Meeting (Kankei Kakusha Renraku Kaigi Kiroku) of 23 December 1941, as quoted in Ibid. pp. 183-184. 3. Okurashq Dai n@ taisen ni okem rengakoku zaisan shori: senji hen, 380. Emphasis added. 4. Ibid. pp. 381-382. 5. US. Department of State, Papers Relating to the Foreign Relations of the United States, Japan: 1931-1941,II, 189, 192. 6. In legal terms, only the assets in Japan of U.S., British, and Dutch interests were officially designated enemy properties subject to confiscation during the war. In practice, however, the direct investments of other nations as well, such as certain properties belonging to the French, were also taken over by the Japanese. RG 353: Records of the State-WarNavyCoordinating Committee, SWNCC 357, Annex 'W to Appendix "A': p. 15; Setsuritsu Goja Shiinen Kinen Shashi Henshiishitsu, ed., Zikoku Sanso no ayumi, pp. 49-51. 7. It is unclear why the government chose to implement formal and elaborate procedures to deal with enemy property. Possible explanations include the expectation of many Japanese leaders that there would be an accounting of foreign properties in all warring nations at the conclusion of the conflict, together with the anticipation by some that Japan might well lose the war and should therefore avoid unnecessary reprisals after the coming of peace. The procedures described below, however, were not always followed. The Army, for example, took control of the two U.S. auto subsidiaries by invoking a separate legal justification. (See below.) 8. Zkisan kanri ha, Law No. 99 of 1941. 9. RG 151, Box 46, "American Branch Factories in Japan"; RG 331, Box 3803; Nihon Danroppu Gomu, Danroppu saritsu gojtl shtlnen, p. 9. O n Dunlop in prewar Japan, see Geoffrey Jones, "The Growth and Performance of British Multinationals Before 1939: The Case of Dunlop," pp. 49-50. The Japanese name for Central Rubber Industries was Chaa gomu kagya. 10. Okurashq Dai niji taisen: senji hen, 217. 11. SCAP, Foreign Property Administration, p. 7. 12. The WLIPR is a translation of K 6 g p shop ken senji ha; "Special Wartime Law" is a translation of Senji tokubetsu ha. 13. Article 5, Law No. 21 of 21 July 1917, as cited in unpublished report, RG 331, Box 6324. 14. dkurashb, Dai nzji taisen: senji hen, p. 380. 15. The Board's Japanese name is Kbgyb Shoya Ken Senji H6 Chasakai. 16. Ibid. p. 380. 17. Okurashq Dai niji taisen: senji hen, 382-389. 18. SPAA is a translation of Tokusha Zaisan Kanri K a n j ~ . 19. See, for example, various cables from the State Department to SCAP, RG 331, Box 1039.

Notes to Pages 107-109 20. Unpublished report, RG 331, Box 1040; Interview with Tristan Beplatt, former SCAP official, Princeton and Cambridge, Massachusetts, 1986. 21. See, also, RG 331, SANACC 399 "Private Investments in Japan by Foreign Investors," May 1948. 22. Kokusai K i n - 9 Kenkyakai (International Finance Study Group), "Gaishi danya taisaku" (Countermeasures for the induction of foreign capital), unpublished report, 10 November 1947, MOF Archives, Noda Uichi Papers. 23. Interview with Katsube Toshio, Tokyo, 1986. 24. A majority of the respondents unconditionally favored restrictions; 8 opposed controls; 3 opposed restrictions "in ~rinciple"but felt that early postwar difficultiesrequired temporary inflow promotion; and 4 gave other answers, such as advocacy of case-by-case regulation or the lifting of restrictions once Japanese capital was again ready to move overseas. Those polled included representatives of Japanese-foreign joint ventures as well as wholly Japanese-owned companies. Nihon Sangya Kyagikai (Federation of Japanese Industries), "Gaishi dbnya ni kansuru sangy~kaino iken narabi yaba ybyaku" (Overview of the opinions and wishes of the industrial world concerning foreign capital induction), Unpublished, 1948, Isihikawa Ichiro Papers, Faculty of Economics, Tokyo University. 25. Ibid. 26. Indeed, fourteen of the Japanese partners in prewar Japanese-foreign joint ventures together established a "Foreign Investment Council" during the Occupation. The group lobbied SCAP and the Japanese government to permit their former joint-venture partners rapidly to reenter the postwar economy. The 14 members were Kyosan Engineering Works, Mitsubishi Electric Manufacturing, Mitsubishi Oil, NEC, Nippon Sheet Glass, Nippon National Cash Register, Sanki Engineering, Shibaura United Engineering, Sumitomo Electric Industries, Tokyo Shibaura Electric, Oriental Carrier Engineering, Tbyb Otis Elevator, Yokohama Rubber, and Yokohama Kyoritsu Warehouse. Letter, Takahashi Ryataro, President, Japan Chamber of Commerce and Industry, to W. K. Le Count, Chief, Finance Division, ESS, SCAR RG 331, Box 1042. In addition, the head of the Foreign Capital Research Society, an organization affiliated with the Bank of Japan whose members came from both the ~ u b l i cand private sectors, also favored freer inflows of FDI after the war. See, for example, Foreign Capital Research Society, "Requests Concerning Promotion of Private Foreign Investments," Unpublished letter, RG 331, Box 1040. 27. The following discussion, as previously noted, examines policies towards Allied and most neutral-country foreign investors. 28. Raymond Dennet et al., eds., Documents on American Foreign Relations, VIII, 109-110. 29. MOF et al., eds., Financial and Trade Arrangements Between Occupied Japan and Other Countries; Jerome B. Cohen, Japan's Economy in War and Reconstruction, pp. 417s.

Notes to Pages 109-111 30. SCAP, 7Ze Treatment of Foreign Nationals in History of the Non-Military Activities of the Occupation ofJapan, pp. 122,156. The only exceptions were acquisitions by certain foreign nationals who had resided in Japan continuously from the prewar period. RG 331, Box 1040. 31. RG 331, Box 1040. 32. Jerome Cohen, Japan's Economy i n War and Reconstmction, pp. 497ff.; Robert Ozaki, 7Ze Control of Imports and Foreign Capital i n Japan, pp. 6-8. 33. Robert S. Ozaki, The Control of Imports and Foreign Capital i n Japan, pp. 5-6. 34. SCAP, Money and Banking in History of the Non-Military Activities of the Occupation of Japan, p. 27; Leon Hollerman, "Interventionism and Foreign Trade Statistics in Occupied Japan," p. 8; and below. 35. RG 331, Box 3811. 36. Ibid. 37. MOF Financial History Section, 7Ze Financial History of Japan: 7Ze Allied Occupation Period, 1945-1952, pp. 587-588, 578. 38. SCAP, Foreign Property Administration, pp. 64-65, 68-69, 77. The restitution process proved complex and lengthy. Claims not settled by the end of the Occupation were mediated through procedures set forth in the Peace Treaty. Under these procedures, prewar Allied investors were given a %month period after enforcement of the Treaty to file restitution claims with the Japanese government. If the Japanese side did not object to the terms of the claim, property generally would be returned within 6 months of application. In cases where the Allied and Japanese interests concerned could not agree on the terms of restoration or compensation, however, a supplement to the Peace Treaty specified that a tri-national commission with representation from Japan, the concerned foreign power, and a third nation would act as mediator. The Commission, which considered claims from International General Electric, Standard-Vacuum Oil, and 24 other American concerns, concluded all property disputes from the wartime era in the spring of 1960. Article 15, Paragraph A, Treaty of Peace with Japan, and "Agreement for Settlement of Disputes Arising Under Article 15 (A) of the Treaty of Peace with Japan," both in U.S. Department of State, United States Treaties and Other International Agreements, Vol. 111, Part 3, 1952, pp. 3183-3184, 4054-4057; Okurasha, Dai nqi taisen: sengo hen, pp. 564ff; Okurashb, Dai niji taisen: shirya hen, pp. 253-299. 39. SWNCC 399, May 848, .US. Nationd Archives. 40. This government,boily, called the Eore$n Trade and Investment Commission (FTIC) in January 1949, was renamed the Foreign Inbestment~Commission (FIC, or Gaishi Iinkai), tharsame March. The,FIC, in turn, was transformed into the Foreign Investment Deliberation Council (FIDC, or Gaishi Shingikai) in 1952..(See Chapter 4, note 26.) Acquisitions by one foreign national of property

Notes to Pages 112-113 held by another non-Japanese national apparently did not have to gain the Commission's approval. 41. Memorandum, William Marquat, Chief, ESS, to Sudo Hideo, Director General, ESB, 17 January 1949, RG 331, Box 1040. Emphasis added. 42. Available evidence suggests that, at least in the area of foreign acquisitions, Japanese officials were hesitant to approve foreign proposals that would give nonJapanese interests significant influence over the management of Japanese companies. See, for example, unpublished report, Ichimada Hisato to William Draper, "Problems and Data Concerning Invitation of Private Foreign Capital," RG 331, Box 1039. A Japanese reply to an investment application by the British-American Tobacco Company (BAT) provides additional insight into Japanese thinking on FDI during the late 1940s. A BAT representative proposed to the Japanese government that his company establish a subsidiary to manufacture tobacco in Japan. The company official said that BAT would seek no remittances of principal or profit "for the time being," and further said that BAT could produce tobacco as a subcontractor to the government, "in order to avoid as far as possible any conflict with the Japanese Monopoly system." The Japanese FTIC, however, flatly rejected the BAT proposal. "In case foreign capital is induced [inlto the tobacco industry," the FTIC wrote, "the industrial profits accruing therefrom will leak away [sic] to foreign countries while the industry itself will be placed under certain foreign influence." A BAT appeal to SCAP also proved unsuccessful. FTIC, ESB 'Troposed Investment in the Japanese Enterprises [sic] by the British and American Trust," and ESS, SCAP "Memo for Record," 21 February 1949, both in RG 331,'Box 1040. 43. Cabinet Order Concerning the Acquisition of Properties and Rights in Japan by Foreign Nationals (Gaikokujin no zaisan shutoku ni kansuru seirei), Cabinet Order No. 51 of 1949. RG 331, Box 1041. 44. Okurasha ed., "B~eki,kokusan kin-yii" (Trade and international finance), in S h ~ zaisei a shi: sh~senkara k h a made (The history of Showa fiscal policy: From the end of the war until the peace treaty), XV, 102. 45. Exceptions were made for those foreign nationals continuously resident in Japan since 2 September 1945, and for prewar investors (see below). "The ~nnouncementIssed [sic] by the Supreme Commander for the Allied Powers on the Subject of Minimum Standards for Business and Investment Activities of Non-Japanese in Japan, January 15, 1949," ContemporaryJapan, January/March, 1949, pp. 143-145. 46. "The Announcement Issed [sic] by the Supreme Commander. . . ," Contemporary Japan, January/March, 1949, pp. 144-145. 47. SCAP generally approved FIC decisions, although there were important exceptions. In May 1949, for example, S C A R Foreign Investment Board turned down a request by a British machinery manufacturer to acquire those shares of

Notes to Pages 114-115 T6y6 Babcock it did not own in the prewar era. The Japanese government recommended approval of this new acquisition, but the FIB rejected the application: "Babcock & Wilcox desire to purchase . . . 10,000 shares of capital stock of T O ~ O Babcock Kabushiki Kaisha, a Japanese corporation, of which they now own twothirds of the stock. The 10,000 shares constitute the remaining one-third of the stock. They propose to purchase the stock with yen now being held to their deposit. The Board found that no additional capital would be furnished the company by the stock acquisition, and therefore the stock acquisition does not meet the minimum standards. The Board does not approve validation of the acquisition." FIB Minutes of 13 May 1949, RG 331, Box 1041. 48. "Allied or neutral nationals and firms who are entitled to claim restoration or restitution of properties or contract rights held prior to 7 December 1941," SCAP's official notice on the subject stated, "are permitted to resume their prewar business activities." "The Announcement by General Headquarters, the Supreme Commander for the Allied Powers Concerning Foreign Business and Investment Activities in Japan," 14 January 1949, G H Q Circular No. 2, as cited in Contemporary Japan, January/March 1949, p. 141. 49. "The Announcement Issed [sic] by the Supreme Commander for the Allied Powers on the Subject of Minimum Standards for Business and Investment Activities of Non-Japanese in Japan, January 15, 1949," in ContemporaryJapan, January/March, 1949, pp. 143-145. 50. Robert Sobel, IBM: Colossus in Transition, p. 17. 51. The two other companies were the Computing Scale Company of America and the International Time Recording Company. Ibid., pp. 11, 17,20-21. 52. Ibid., p. 86. 53. Saul Engelbourg, "International Business Machines: A Business History," p. 286; Ibid., pp. 76-77. 54. Sobel, IBM, pp. 76-77. 55. Ibid., p. 134. 56. Interview with Morishita Keiz6, IBM Japan, Tokyo, 1986. 57. British Tabulating Machine Company (BTM) operated IBM's British business. BTM was granted the exclusive right to manufacture and lease IBM tabulating equipment throughout the British Empire with the exception of Canada. Engelbourg, p. 285; Sobel, IBM, p. 134. 58. IBM as early as the 1920s was cited as a leading firm in direct foreign investment which, according to one scholar, "was coupled with such industrial giants, in this respect, as Standard Oil, Ford and General Motors." Engelbourg, p. 280. However, foreign business accounted for less than 20% of total IBM sales volume in 1931, and stood at only $1.6 million in 1935, its peak prewar year for overseas sales. Engelbourg, p. 291; Sobel, IBM, p. 135. 59. The single exception is apparently the Kawaguchi Electric Tabulating Machine (Kawaguchi Shiki Denki Shtikeiki), produced in Japan from 1905 but of

Notes to Pages 115-118 uncertain quality and therefore limited popularity. Beika Minoru, Nihon keiei kikaika shi, pp. 8ff. 60. Beika, p. 16. The Japanese name for the Statistics Bureau was Tbkeikyoku. 61. Ibid. p. 21; IBM Japan, "IBM Japan: A Chronological Summary," 1925-1974, p. 1; Mitsui Corporate Archives. 62. Beika, p. 18. 63. Sobel, ZBM, p. 73; various Japanese trading-company catalogs. 64. Interview No. 1 with Inagaki Sanae, Tokyo, 1984, IBM Japan Corporate Records. 65. IBM, "IBM Japan: A Chronological Summary, 1925-1974," p. 1; Nihon IBM, Nihon ZBM gojiinen shi, p. 13. Japan Porcelain is a translation of Nihon Tbki; Morimura Brothers is from the Japanese Morimura BurazZzu Shbkai. 66. "Contract for Tabulating Machine Service in Japan," 6 October 1924, IBM Japan Corporate Records; Nihon IBM, Nihon IBM gojiinen shi, p. 20. Konpasu (Compass), 15 June 1976, p. 2; IBM, "IBM Japan: A Chronological Summary," 1925-1974, p. 1. 67. Nihon IBM, Shashi sma, p. 12. 68. "Memorandum of Agreement," 21 May 1925, IBM Japan Corporate Records; Nihon IBM, Nihon IBMgojanen, pp 21-23; IBM, "IBM Japan: A Chronological Summary, 1925-1974," p. 1. 69. Nihon IBM, Nihon IBMgojiinen shi, pp. 24-27. Kurosawa Trading is a translation of the Japanese Kurosawa Shbten. 70. Ibid. p. 26; IBM, "IBM Japan: A Chronological Summary, 1925-1974," pp. 1-2. 71. IBM had just 5 Japanese customers by 1930: Japan Porcelain (date of initial contract: 1 August 1925); Kobe Shipbuilding Yards, Mitsubishi Heavy Industries (1 June 1926); Nagasaki Shipbuilding Yards, Mitsubishi Heavy Industries (1 April 1927); Kobe Naval Yards, Imperial Japanese Navy (10 September 1927); and MCI (1 May 1928). IBM Japan Corporate Records. 72. Sobel, IBM, p. 80; Nihon IBM, Nihon IBM gojiinen shi, pp. 35-36. 73. IBM, Asia Pacijic, p. 2. Under the terms of the agreement with the American parent to establish the new company, the Japanese subsidiary could market IBM products in Formosa, Korea, Manchuria, and other Japanese colonies in addition to Japan's home islands. In return, the local firm agreed to pay the U.S. company 25% of the rent from tabulating machines, and 10% of the proceeds from sales of tabulating cards. RG 59, Letter, J. T. Wilson to K. C. Krentz, 9 November 1945; RG 331, Box 3801. 74. Watson Tabulating Machines is a translation of the Japahese name Wattoson Tbkei Kikai. 75. RG 59, "The Fiscal Position of American Companies in Japan at the Beginning.of 1939," 14 January 1939. 76. The name of the Japanese company was changed from Watson Tabulating

Notes to Pages 118-120 Machines to Japan Watson Tabulating and Accounting Machines (Nihon Wattoson Tbkei Kaikei Kikai) on 1 July 1937. Yokohama Court Registration No. 1025 of 1937, as cited in RG 331, Box 3801. 77. RG 59, "The Fiscal Position of American Companies in Japan at the Beginning of 1939," 14 January 1939. 78. Nihon IBM, Nihon IBM gojilnen shi, pp. 68-69. 79. RG 59, "The Fiscal Position of American Companies in Japan at the Beginning of 1939," 14 January 1939; Ibid. 80. Poor quality made initial production unusable, but, by 1941, Japan Watson was manufacturing cards good enough for general use. Nihon IBM, Nihon IBM gojilnen shi, pp. 56-57; "Kdo Kbjd' (The card factory), IBM Japan News, 17:15. 81. Nihon IBM, Nihon IBM gojilnen shi, p. 69. Yokohama Court Registration No. 1025 of 1937, as cited in RG 331, Box 3801. IBM found some special uses for its Japanese investment towards the close of the era. It is reported, for example, that the American company managed to re-establish communications with its heretofore French IBM-run Hanoi office through Japan Watson after Japanese troops had taken over northern Indochina in 1940. Interview with Morishita Keiz6, IBM Japan, Tokyo, 1986. 82. The well-connected Shibusawa Tomb had been appointed a director of the Japanese subsidiary at the time of its establishment to assist the foreign company in the local market. It seems, however, that the Shibusawa group never exercised the 20% option, but did hold a small number of shares in the subsidiary throughout the prewar and wartime eras. RG 59, J. T. Wilson to K. C. Krentz, 9 November 1945. 83. Daiamondosha, ed., Sanzen kyilhyaktlwa no nogamotachi, p. 38. Mizushina was himself imprisoned shortly after delivering this speech, however, on suspicion that he was spying for the Americans. Apparently the authorities were particularly suspicious of Mizushina because word had gotten back to the United States that Mizushina had helped install IBM equipment at Tachikawa Aircraft. The police evidently considered the operations of the airplane maker classified information, and suspected that Mizushina had passed along intelligence about Tachikawa to the Americans. Mizushina was released from jail in February 1942 but kept under house arrest for another year. Ibid. pp. 39, 44. 84. RG 331, Box 3801. 85. Interview No. 1 with Inagaki Sanae, Tokyo, 1984; Nihon IBM, Nihon IBM gojilnen shi, pp. 71-72. 86. Jinushi was apparently selected because he was already relatively familiar with the IBM business. RG 331, Box 3801. Jinushi had arranged for the export to Japan of the first IBM tabulating machine, for Japan Porcelain, in September 1925, and also had obtained for Morimura Brothers the exclusive agency to lease IBM machines in the Japanese Empire that same year. The 3 non-Japanese direc-

Notes to Pages 120-122

tors of Japan Watson-Guy de la Chevalerie, Henry Chapman, and William Spencer-did not officially resign from the company until 26 February 1942. 87. Tokyo Electric was a logical choice to promote the new organization for at least two additional reasons. (1) It already had relatively sophisticated machine tools and trained engineers, so that the parent could offer technical and manufacturing support to the new subsidiary. Indeed, according to one source, Tokyo Electric "was the only company [in Japan] which had the ability to understand and repair the machines at that time." As cited in RG 311, Box 3801. (2) The government already had chosen Tokyo Electric to receive priority supplies of inputs necessary to produce tabulating machines under provisions of the Important Machine Manufacturing Industry Law. There was also at least one negative reason to select Tokyo Electric: The major life-insurance companies-important Watson customers with a strong interest in the continuity of the IBM business and therefore themselves good candidates to sponsor a new organization-were prohibited from controlling or managing a tabulating-machine company under provisions of the Insurance Business Law. RG 331, Box 3801; Interview No. 1 with Inagaki Sanae, Tokyo, 1984. 88. Tokyo Electric also transferred some of its own employees to the new venture. Tokyo Electric's Inagaki Sanae, for example, at Nishioka's behest joined the new company on 15 October 1943. There he took charge of the marketing operation. After the war, Inagaki would become President of the reconstituted IBM Japan organization. Interview No. 1 with Inagaki Sanae, Tokyo, 1984; IBM, "IBM Japan: A Chronological Summary, 1925-1974," p. 2. 89. Beika, p. 54; RG 331, Box 3801. 90. Japan Tabulating Machine Company is a translation of Nihon Tskeiki Kabushiki Kaisha. 91. The major shareholders were Tokyo Electric (55% of the total equity); Dai Ichi Life Insurance (10%); Imperial Life Insurance (10%); Japan Life Insurance (9.5%); and Shibusawa Brothers (5%). Ibid. Other sources, however, indicate that the Tokyo Electric share stood at 60%. Whatever the precise number, all sources agree that the electric company had a controlling interest. 92. The other directors were Yano Ichirb of Dai Ichi Life Insurance; Hirose Gen of Japan Life Insurance; Shibusawa K e i z ~and Morimura Yoshiyuki. Beika, p. 54. 93. Interview No. 1 with Inagaki Sanae, Tokyo, 1984; RG 331, Box 3801. 94. Interview No. 1 with Inagaki Sanae, Tokyo, 1984. 95. These machines included printers, slitters, and corner cutters. An Allied air raid destroyed most of these machines on 15 April 1945, but JTM then managed to repair some of these machines and shift them to the Fujimiya card factory the following month, and again to the Fuji card factory in July 1945. "Kdo Kbjb' (The card factory), IBMJapan News 17:15 (December 1960); RG 331, Box 3801. 96. JTM had produced 2 mechanical verifiers, 2 horizontal sorters, and 70

Notes to Pages 122-126

mechanical key punches by April 1945. It is not clear, however, if these machines were ever put to practical use. Ibid. 97. Interview No. 1 with Inagaki Sanae, Tokyo, 1984; Beika, p. 54. 98. RG 331, Box 3801. 99. Ibid. The Japanese name for Kanegafuchi Industries was Kanegafuchi Jitsugyb. 100. Beika, p. 56; Nihon IBM, Nihon IBM gojiinen shi, p. 76. The Japanese name for the Statistics Research Institute was Tbkei Kenkyiijo. 101. Daiamondosha, ed. Sanzen ky~hyakuwano nogamotachi, p. 44. 102. The Japanese name for Kobe Steel was Kobe Seikbjo. 103. The military also brought back IBM machines from Indochina and the Dutch East Indies. 104. RG 331, Box 3801; Interview No. 1 with Inagaki Sanae, Tokyo, 1984; Beika, p. 55; IBM, "IBM Japan: A Chronological Survey, 1925-1974," p. 2; Daiamondosha, ed., Sanzen kyiihyakuwa no nogamotachi, p. 45; Nihon IBM, Shashi s w a , p. 14; Nihon IBM, Nihon IBM gojiinen shi, p. 76. According to one source, Mizushina deliberately stalled so that the Navy's project would fail: ~ i z u s h i n a , in one former IBM employee's mind, was therefore "more loyal to IBM than he was to his government, because he moved very, very slowly in e~ecutingthe orders he got to dismantle this machine." Interview with James Birkenstock, Boynton Beach, Florida, 1987. 105. It was estimated that about 80% of the Powers machines were destroyed during the war, yet JTM reported that fully 86% of the tabulating equipment it had acquired from Watson Japan remained in operating condition at the start of the Occupation. RG 331, Box 3801; Beika, p. 82. 106. Beika, pp. 82-83. Yoshizawa Accounting Machine is a translation from the Japanese Yoshizawa Kaikeiki. 107. RG 331, Box 3801; "Kado kbjb' (The card factory), IBMJapan News 17:15 (December 1960); Interview No. 1 with Inagaki Sanae, Tokyo, 1984. 108. The HCLC also took over the 1,000 shares of JTM held by Shibusawa Brothers (Shibusawa Dbzoku). 109. Even the loss of the IBM trade, however, did not put JTM (then renamed Japan Tabulating and Accounting Machines, Nihon T6kei Kaikei) completely out of business. Instead, an IBM representative, on behalf of the (former) JTM, arranged for the importation into Japan of machines for making continuousform paper used by tabulators, and some of the remaining employees at the Japanese firm soon began to produce the paper for local customers. In 1956, Japan Tabulating and Accounting was acquired by Japan Office Supplies (Nihon Jimu Yijhin), a company that remains in business to the present day. RG 331, Box 3801; Nihon IBM, Nihon IBM gojiinen shi, pp. 88-89; Interview No. 1 with Inagaki Sanae, Tokyo, 1984. 110. Interview with And6 Kaoru, Tokyo, 1986; Sobel, IBM, pp. 98-101ff.

Notes to Pages 126-129

111. Beika, p. 76. 112. Interview with And6 Kaoru, Tokyo, 1986. 113. Beika, p. 77. 114. Mizushina KG for example, helped the U.S. Army with IBM machines in Yokohama shortly after the start of the Occupation. 115. Interview with And6 Kaoru, Tokyo, 1986; Interview No. 1 with Inagaki Sanae, Tokyo, 1984; Nihon IBM, Nihon IBM goj~nenshi, p. 83; Beika, p. 77. 116. Interview with And6 Kaoru, Tokyo, 1986; Interview No. 1 with Inagaki Sanae, Tokyo, 1984; Nihon IBM, Nihon IBM gojkaen shi, pp. 82-83. 117. RG 331, Box 3801. 118. The Japanese government awarded IBM in 1953 the full amount of its claim against Japan for war damages, making IBM one of the very first major foreign companies to receive such a payment. RG 331, Boxes 3801 and 3808. JTM's last payment to IBM actually was made on 18 April 1950, based on the final fees JTM collected before returning its machines to the American company at the end of March. (See Table 16.) 119. RG 331, Box 3801; Interview No. 1 with Inagaki Sanae, Tokyo, 1984. 120. RG 59, Records of the U.S. Reparations and Restitution Delegation, Box 5. Former IBM Japan Manager Inagaki Sanae does suggest, however, that IBM officials did cast considerable doubt on the future of the Japanese market at the outset of the Occupation. The focus of IBM's overseas interest at the start of the postwar ~ e r i o dhe , later noted, was the European market. Interview No. 1 with Inagaki Sanae, Tokyo, 1984. 121. RG 331, Box 3801. 122. The Japanese company's Yokohama Court Register was changed on the earlier date to reflect the end of the firm's custodianship by Japanese banking interests, at which time the legal status of the IBM subsidiary was restored to its condition as of 7 December 1941. However, as previously noted, the Japanese company allowed JTM to continue renting and servicing IBM equipment until 31 March 1950. This IBM allowed because the restoration of its right to conduct business in Japan took place in August 1949, the middle of the accounting year at JTM, and virtually all the machines leased by JTM were for a period of one year. The first postwar meeting of shareholders took place on 3 June 1949 but was not legally binding until it, too, had been recorded in the Yokohama Court Register that August. It was at this shareholders' meeting that it was decided to change the name of the company to Japan International Business Machines. As a provisional measure, Mallen had been appointed President and Director; Decker, Vice-president and Representative Director; and Mizushina, Managing Director. RG 331, Box 3801. 123. The subsidiary's total capital stood at 29,800,000 yen on 13 October 1950. Nihon Gink6 Gaikoku Kawase Kanrikyoku (Foreign Exchange Control Bureau, Bank of Japan), Gaishi d~nyiikankei s h u y ~ninka anken ichiran, p. 95.

Notes to Pages 129-133 124. Ibid. 125. Barred from remitting funds overseas, IBM reinvested all its dividends and royalties in the Japanese company until the American firm managed to gain remittance privileges from the Japanese government in 1960. (See below.) Interview with Got6 Takeshi, IBM Japan, Tokyo, 1986; Interview No. 1 with Inagaki Sanae, Tokyo, 1984; Nihon IBM, Nihon IBM gojanen shi, p.94; Daiamondosha, Sanzen ky~hyakuwano nogamotachi, p. 48. 126. Anne Millbrooke, "Otis in the Pacific and the Far East," Archive and Historical Resource Center, United Technologies, August 1983. 127. Anne Millbrooke, "Otis in Europe, 1873-1975," Archive and Historical Resource Center, United Technologies, April 1986, pp. 1-2. 128. Ibid. p. 2; W. J. Reid, "Organization of the International Division," 1962, Otis Elevator Company, from the files of Mira Wilkins. 129. Ibid. 130. U.S. Department of Commerce, Bureau of Foreign and Domestic Commerce, Electrical Goods in China, Japan and Vladivostock in Special Agent Series, No. 172, 1918, p. 141. 131. Atsuji Shizuo, "Nihon ni okeru erebeta no rekishi" (The history of the elevator in Japan), Erebeta h i 17: Part I, 13 (January 1970); Nagano Bun-ichi "Nihon ni okeru erebaa no enkaku" (The development of the elevator in Japan), Erebeta kai 1:7 (January 1966). 132. Nihon Ochisu Ereb~ta(Japan Otis Elevator), Nihon Ochisu Erebaa gojanen no ayumi, pp. 9-10. 133. Ibid. p. 11. 134. The largest Japanese firms that entered the industry during these years were Naigai Elevator, Uchida Elevator, Sanky6 Elevator, and Shimada Elevator. Ibid. p. 15; U.S. Department of Commerce, "Industrial Machinery in Principal Foreign Countries," Trade Information Bulletin 82571 (1935). 135. Nagano Bun-ichi, "Nihon ni okeru erebeta no enkaku" (The development of the elevator in Japan," Erebeta kai, 1:8 (January 1966); Ishikawa Riichi "The Outline of Japanese Elevator Inudstry [sic]': unpublished report, p. 5. 136. Nihon Ochisu Erebeta, p. 19. 137. W. D. Baldwin to D. W. R. Green, 18 November 1915, and "Summary of Mr. Grandgerard's Trip to Japan, February 11 to June 26, 1922," Otis Elevator Corporate Records. 138. Otis Elevator Corporate Records. 139. Nihon Ochisu Ereb~ta,p. 6. 140. "Summary of Mr. Grandgerard's Trip to Japan, February 11 to June 26, 1922," Otis Elevator Corporate Records. 141. W. D. Baldwin to D. W. R. Green, 18 November 1915, Otis Elevator Corporate Records; Otis Elevator Annual Report, 1914. 142. Otis Elevator Corporate Records.

Notes to Pages 133-136

143. "Historical Development of the Waygood-Otis Agreements Affecting Business in Japan and Argentine Republic," 11 February 1926, Otis Elevator Corporate Records. 144. The annual payoff averaged about $5000 per year between 1916 and 1926, and peaked at $10,551.55 in 1919. "Summary of Mr. Grandgerard's Trip to Japan, February 11 to June 26, 1922," Otis Elevator Corporate Records. 145. Otis Elevator Corporate Records. 146. "Agency Agreement-Japan," 19 December 1921 and other contracts, Otis Elevator Corporate Records. 147. "Summary of Mr. Grandgerard's Trip to Japan, February 11 to June 26, 1922," Otis Elevator Corporate Records. 148. Nihon Ochisu Erebeta, p. 12. 149. The territory specified included Japan, Korea, Formosa, Sakhalin, and South Manchuria. '%rticles of Agreement Between Otis Elevator Company and Mitsui Bussan Kaisha, Limited, Governing Superintendence of Otis Business in Japan," 1 July 1926, Otis Elevator Corporate Records; Nihon Ochisu Erebaa, pp. 14-15. 150. Ibid. 151. "Agreement Between Otis Elevator Company and American Trading Company, Inc.," 24 November 1926, Otis Elevator Corporate Records. 152. Nihon Ochisu Erebeta, p. 19; Nagano Bun-ichi, "Nihon ni okeru erebaa enkaku" (The development of the elevator in Japan), Erebeta kai 1:9 Uanuary 1966);Atsuji Shizuo "Nihon ni okeru erebaa no rekishi" (The history of the elevator in Japan), Part 3, Ereb~takai 24:34 (October 1971). 153. Memorandum of Edwin W. Sims, 11June 1931, Otis Elevator Corporate Records. 154. Mitsui Bunko, "Shitench6 kaigi gijiroku," 1926; Nihon Ochisu Ereb~ta, p. 20. Other examples of the "T6y6 Strategy" include T6y6 Carrier, T6y6 Babcock, and T6y6 Rayon. 155. Memorandum of Edwin M. Sims, 11 June 1931, Otis Elevator Corporate Records. 156. "Agreement Concluded Between Otis Elevator Co., and Mitsui Bussan, K.K.," 24 December 1931, RG 331,, Box 3808. Although the contract was formally signed in December, the decision to approve the accord had been made by the Otis Board of Directors on 16 September 1931. Board Minutes of the Otis Elevator Company, from the files of Mira Wilkins. The Mitsui Board formally agreed to the new venture on 22 December 1931. As counsel for Otis advised the President of the elevator company, "The provisions do not convey control to Mitsui but they give Mitsui an absolute veto power. Under the arrangement it will be impossible for Otis to proceed in any way in the management of the company unless and until the plans are agreed to by Mitsui." Edwin W. Sims to J. H. Van Alstyne, 21 October 1931, Otis Elevator Corporate Records.

Notes to Pages 136-140

157. "Agreement Concluded Between Otis Elevator Co., and Mitsui Bussan K.K.," 24 December 1931, RG 331, Box 3808; Nihon Ochisu Ereb~ta,p. 20. Tbyb Otis Elevator is a translation of T6yb Ochisu Erebaa. 158. Nagano Bun-ichi, "Nihon ni okeru erebeta no enkaku," Ereb~takai 1:9 (January 1966). 159. RG 331, Box 3808; Nihon Ochisu Ereb~ta,p. 34. 160. Nihon Ochisu Ereb~ta,p. 34. 161. RG 331, Box 3808; Ibid. pp. 35-36. Grandgemd left Japan via Nagasaki on 21 September 1941. RG 59, Memorandum of Conversation, 4 November 1941. 162. MOF acted in this instance under authority of Article 10 of the EPCL. 163. MOF also canceled a great number of Otis patents during the war years. This MOF accomplished at times through the technicality that Otis had failed to pay the requisite patent fees for a particular item in a certain (wartime) year, and at other times through direct application of the WLPR. Otis filed a war claim loss of $429,044 under the U.S. Revenue Act of 1942 in connection with its Japanese interests. The Japanese authorities also deposited monies in the YSB in the name of the Shanghai branch of Otis Elevator, after Japanese forces had taken control of that Chinese city. "Since the early part of September," the Otis affiliate stated in its Eleventh Business Report for the 1942 calendar year, "the administration and management of the Shanghai branch office of Otis Elevator Company have been entrusted to us by the Japanese Armed Forces on the spot." RG 331, Box 3808; Nihon Ochisu Ereb~ta,pp. 36-37. 164. Nihon Ochisu E r e b ~ ap. , 36; RG 331, Box 3808; "History of Otis Elevator Company's Operation in Japan, c. 1898-Present," Otis Elevator Corporate Records; Otis Bulletin, April 1948, p. 15. Oriental Elevator is a translation of T6y6 Shskski. 165. RG 331, Box 3808. 166. Ibid. 167. Ibid. 168. Oriental Engineering Industries is a translation of T6yb Zbki K6gyb. 169. Otis Bulletin, April 1948, p. 13. 170. Ibid. 171. Nihon Ochisu Erebaa, p. 37. 172. Nagano Bun-ichi, "Nihon ni okeru erebeta no enkaku," Ereb~takai 1:9. 173. "Sengo hatsu no erebeta" (The first elevators in postwar Japan), Ereb~ta kai 8:26. 174. "Report from Tokyo" Otis Bulletin, April 1948, pp. 13 ff. 175. "Kybkai no enkaku" (The development of the association), Ereb~takai 141:l. 176. Ishikawa, p. 2. 177. Nihon Ochisu Ereb~ta,p. 38; RG 331, Box 3808. 178. "Report from Tokyo" Otis Bulletin, April 1948, p. 15.

Notes to Pages 140-145

179. For example, the company could not issue new stocks or bonds, declare dividends, or dispose of assets without authorization. Jerome Cohen, Japan's Economy i n War and Reconstruction, p. 428. 180. RG 331, Box 3808. The ERRL, Law No. 40 of 1946, was ~romulgatedon 18 October 1946. 181. Nihon Ochisu Ereb~ta,pp. 38,40; Edward Martin, fie Allied Occupation of Japan, pp. 74-75; RG 331, Boxes 1042, 3801, and 3808. 182. "Report from Tokyo," Otis Bulletin, April 1948, pp. 13-14; RG 331, Box 3808; Otis Elevator Corporate Records. 183. Ibid.; Otis Elevator Corporate Records; Nihon Ochisu Ereb~ta,pp. 41-42. 184. The last option seemed the least likely, an Otis memorandum noted, for licensing would be "a new departure from our standard policy." Otis Elevator Corporate Records. 185. Nihon Ochisu Ereb~ta,p. 46. 186. Otis Elevator Corporate Records. 187. Nihon Ochisu Erebaa, p. 47. 188. Ibid. p. 47. 189. Otis Elevator Corporate Records. 190. Ibid. 191. RG 331, Box 3802. 192. Foreign Capital Research Society, Bank of Japan, Statistical Data and List of Principal Cases of Foreign Capital Investment i n Japan as of the End of 1952, pp. 22-27; Interviews and unpublished company notes from NCR, B. F. Goodrich, and Libbey-Owens Sheet Glass. 193. There is, unfortunately, no complete record of efforts by American companies without prewar investments in Japan to directly invest in the late 1940s. Limited evidence obtained by the author suggests that few formal investment applications were submitted to the authorities by U.S. newcomers during this period. Some American companies apparently were not prepared to make a major commitment until the prospects for the postwar economy became clearer, whereas others apparently did not bother to submit investment applications when confronted with stated FDI restrictions. Clearly, the authorities validated few such applications through the turn of the decade. For details, see Bank of Japan, Foreign Capital Research Society, Statistical Data and Principal Cases of Foreign Capital Investment i n Japan as of the End of 1952, pp. 22-27. A notable exception is Monsanto Chemical, which managed to establish an equalpartnership joint venture with Mitsubishi Chemical Industries in 1951. See Ibid.; Mira Wilkins "American-Japanese Foreign Direct Investment Relationships, 1930-1952," pp. 515, 517. 194. Richard J. Samuels, fie Business of the Japanese State, pp. 188-190. 195. Bank of Japan, Foreign Capital Research Society, Statistical Data, pp. 22-27. O n foreign investment in the postwar Japanese oil industry, see also Laura

Notes to Pages 146-147 Hein's important study, Fueling Growth: The Energy Revolution and Economic Policy in Postwar Japan, pp. 202-212. Hein's findings with respect to foreign investment in the early postwar petroleum industry are largely confirmed in U.S. and Japanese government documents. Yet her broader discussion of FDI during this period beyond the oil sector-including, in particular, her assertion that "the Japanese actively encouraged direct foreign investment" more generally during the years 1948 to 1952-does not appear to enjoy similar support in the historical record. To argue, for example, that foreign oil companies managed to directly invest during these years because they were "more interested" in such investments than other foreign companies ignores the experiences of major American multinationals such as Coca-Cola, as we shall see, as well as the special position foreign oil had long held in Japan largely due to that country's enormous dependence on foreign petroleum sources. 196. Raymond Vermon, Two Hungry Giants, p. 92. 197. Okurash~,ed., "B~eki,k~kusaikin-yii," in Shma zaisei shi: sh~senkara k m a made, XV, 102. 198. The military invoked a special imperial ordinance (Imperial Ordinance No. 901 of 29 December 1939), issued under Article 13 of the General Mobilization Law, Law No. 55 of 1 April 1938, to carry out these expropriations. This procedure was apparently used to enable the military to circumvent the MOFcontrolled machinery set up under the EPCL, which was passed the very same day that the military invoked the imperial ordinance. RG 331, Boxes 3795 and 3798. 199. U.S. Board of Economic Warfare, Enemy Branch, 'Troduction of Automotive Vehicles in the Japanese Empire," unpublished report, p. 76, from the files of E. Motherwell. 200. RG 243, Department of Justice, War Division, Economic War Section "Report on Ford Motor Company-Yokohama," 1 March 1943; RG 59, Restitution and Reparations Delegation, Box 2; Accession 713, Box 28, FMC Archives, from the files of Mira Wilkins. 201. RG 331, Box 3795. 202. RG 331, Box 3808; Interview with Suzuki Kanemitsu, Tokyo, 1986. 203. RG 331, Box 3798. 204. William Chandler, U.S.-Japanese Automobile Diplomacy; various FMC Archives and GM Corporate Records. 205. According to GM reports, for example, total automobile registrations in Japan in 1951 stood at just 29,043, and annual increases were estimated at just 6,000 cars. H. B. Philips and H. A. Quade, "Report on Visit to Japan, January 24-February 21, 1952," Overseas Policy Group, Corporate Executive Committee, GM, GM Corporate Records. In addition, Ford and GM also foresaw important opportunities to expand in the domestic U.S. market, in Europe, and in

Notes to Pages 147-154 Australia. See, for example, various internal reports of the Overseas Policy Group, GM Corporate Records. 206. Memorandum, Arthur J. Wieland to Henry Ford 11and E. R. Breech, 7 April 1952, FMC Archives, Doc. No. AR-71-37:l. 207. "Summary of Discussion at the April 8, 1952 Meeting of the Overseas Policy Group," GM Corporate Records.

FOUR

The Screen Door, 1950-1970

1. Ohkawa Kazushi and Henry Rosovsky, Japanese Economic Growth Trend Acceleration in the Twentieth Century, Chapter 2. 2. Robert Ozaki, The Control of Imports and Foreign Capital in Japan, p. 95; Bureau of Technologies, Tsasho sangya sha (MITI), Gijutsu d~kcich~sah~kokusho (Report on current state of technologies), 1963 as cited in Yoshihiro Tsurumi "Technology Transfer and Foreign Trade: The Case of Japan, 1950-1966," PhD Dissertation, Graduate School of Business Administration, Harvard University, 1968. This figure of 7,845 does not include additional contracts whose duration was one year or less. 3. Hayashi Shintarq "Shihon jiytika to keiki chasei saku" (Capital liberalization and counter-cyclical policy), B~ekito kanzei, November 1967, pp. 10-11, as cited in Robert Ozaki, pp. 131-132. 4. Ibid. 5. See, for example, Robert Ozaki, pp. 127-130. 6. Komiya Ryatara "Shihon jiytika no keizaigaku" (The economics of capital liberalization), Ekonomisuto 25:14-29 (July 1967). 7. Committee for Economic Development, Japan in the Free World Economy (New York: 1963), pp. 51-52, as cited in Robert Ozaki, p. 120. 8. O n mid-1960s Japanese business opinion see, for example, pronouncements of Keidanren as cited in Nihon keizai shinbun, English edition, 27 December 1966. Some current and former MITI officials argued for continued control of FDI throughout the 1960s debate over capital liberalization. See, for example, the arguments of then-recently-retiredMITI official Sabashi Shigeru in Daiamondo, 22 July 1968, i s cited in The Journal of the ACCJ, September 1968, pp. 32-33. Other MITI officials, though taking a more moderate view of foreign investment, still defended the logic of "partial" or "tactical" controls over FDI in important industries. See, for example, Amaya Naohiro, "Shihon jiytika to nashonaru intaresuto" (Capital liberalization and national interest), TOYOkeizai, 31 July 1969. 9. U.S. Department of Commerce, Investment in Japan: Basic Infomation for United States Businessmen, p. 66. 10. Japan later concluded similar treaties with Great Britain and other nations.

Notes to Pages 154-156 National treatment guarantees for the U.S. investor, under this treaty, had to be furnished by no later than 1956. See below. 11. As cited in U.S. Department of Commerce, Investment in Japan:Basic Informationfor United States Businessmen, pp. 66-67; Dan Fenno Henderson, Foreign Enterprise in Japan, p. 275. 12. As cited in Henderson, p. 283. 13. Ibid., p. 284. 14. Ibid., p. 270. 15. The Japanese name for the Foreign Investment Law is Gaishi ni kansuru haritsu, Law No. 163 of 1950. 16. Interview with William Diehl, Clearwater, Florida, 1987; RG 331, Boxes 1040, 1041. 17. Interview with Hiramatsu Morihiko, Tokyo, 1986. 18. Interview with Richard Rabinowitz, Tokyo, 1986. 19. Article I, FIL. 20. Article 11, FIL. 21. The FIL made no explicit distinction between foreign direct and portfolio investment. The Law defined the term foreign investor to include a "nonresident" as signified by the 1949 FECL (exclusive of juridical persons), a juridical person established under foreign law or having its principal office located abroad (unless designated by the Minister of Finance, or, before 1952, by the Foreign Investment Commission), and any other juridical person whose stock or proprietary interest was wholly owned by either of the above two types of foreign investors. Article 3, FIL. 22. Article XI, FIL. Article 12 of the original FIL specifically stated that the acquisition of such property would not be validated unless it created additional assets for the juridical person concerned or was effected through Japanese currency legally obtained from foreign exchange. Article 12, FIL. 23. Article X, FIL. The 1949 FECL covered technological assistance contracts of less than one year. Henderson, p. 230. 24. Article XUI, FIL; Henderson, pp. 234-235. Beneficiary certificates also were covered under the FIL following a 1952 amendment to the basic legislation. 25. The Law also set forth negative criteria, which stipulated that validation would not be accorded to unfair or fraudulent contracts, or investments "deemed to have an adverse effect on the rehabilitation of [the] Japanese economy." Article VIII, FIL. 26. Article XIX, FIL. Minor cases generally were exempted from this procedure. The FIDC was largely patterned after the FITC, which was established in 1949. See Chapter 3, note 40. 27. The composition of the FIDC was changed to include representatives from the business and academic communities in the late 1960s.

Notes to Pages 157-160 28. Interviews with Katsube Toshio, former Secretary General, and Komuro Tsuneo, former MITI representative to the Working Committee, FIC, Tokyo, 1986. 'Working Committee" is a translation of the Japanese term kanjikai. 29. Thus, for example, MITI generally took a primary role in judging applications dealing with many of the manufacturing industries; MOF influenced the fate of requests affectingthe banking sector; and the Ministry of Transportation played a central role in determining the fate of foreign-investment applications in the shipping industry. 30. Interview with William Dizer, Tokyo, 1986. 31. Interview with Katsube Toshio, Tokyo, 1986. 32. Arnakudari literally means "descent from heaven." 33. The Japanese name for the Foreign Exchange and Foreign Trade Control Law is Gaikoku kawase oyobi gaikoku b~iekikanri ha, Law No. 228 of 1949. The law is also abbreviated in English as FEL and FEFTCL. 34. Robert Ozaki, p. 144. The text of the FECL as here presented is based on the Law as it stood in 1968. The precise provisions of the Law, however, have changed somewhat since its passage in 1949. These changes can be traced through succeeding amendments to the original law. 35. Allan Smith, "The Japanese Foreign Exchange and Foreign Trade Control Law and Administrative Guidance: The Labyrinth and the Castle," Law and Policy in International Business 16:421. In Japanese administrative law, "validation" (ninka) signifies the permission from a public administrative agency for a juridical entity or natural person to carry out an act not otherwise permitted, if such validation is specifically required in the applicable legal regulation. 36. Article XXVII, 1949 FECL, as cited in Robert Ozaki, pp. 150-151. Under the law, all persons were defined as either exchange "residents" or as exchange "non-residents." In general terms, a resident was someone who had a domicile in Japan. The law treated branches in Japan of foreign juridical persons as residents. Ibid., pp. 15-16. 37. Article XXXI, 1949 FECL. Ibid., p. 152. 38. Articles XXXVIII-XL, XLM and LII, 1949 FECL. Ibid., pp. 153-155. 39. Ibid., p. 111. 40. In addition to "yen-base companies" that entered Japan from October 1956, firms (or portions of the equity of firms) established by foreigners with yen derived from prewar Japanese assets constituted a second group of such "yen-base companies." 41. Interviews with Richard Rabinowitz, New Haven and Armonk, 1991 and John Christiansen, Tokyo, 1986. Some critics, unduly minimizing the restrictions of the yen-base system, apparently have overstated the attractions of the "yen-base company." See, for example, Abegglen and Stalk, pp. 218-219. 42. Henderson, pp. 270ff; Interview with Richard Rabinowitz, Tokyo, 1986.

Notes to Pages 161-164 43. As cited in Coca-Cola Company, Chronological History of The Coca-Cola Company, 1886-1967, p. 1. 44. Ibid., pp. 2ff. 45. Coca-Cola Company, The Chronicle of Coca-Cola, p. 8. 46. See, for example, Richard S. Tedlow, New and Improved: The Story of Mass Marketing in America, Chapter 2. 47. Coca-Cola (Japan) Company, Ltd., Coca-Cola: The First Thirty Ears, p. 10. 48. Coca-Cola Company, The Chronicle of Coca-Cola, pp. 7-8. 49. Coke set up its first foreign plant in Canada in 1900. See Pat Watters, CocaCola: An Illustrated History, pp. 179, 181. Coca-Cola also had established a branch plant in Havana by January 1906. See Mira Wilkins, The Emergence of Multinational Enterprise, pp. 156-157. 50. Watters, p. 181. 51. Coca-Cola Company, Chronological History, p. 4. "Remote indeed," commented a U.S. business journal well before World War 11, "is that portion of the earth's surface which has not been penetrated by Coca-Cola signs and billboards." Fortune, July 1931, p. 67. 52. Watters, p. 181; "Coca-Cola Through the Years," unpublished manuscript, RG 331, Box 1039. 53. Watters, pp. 180-181. 54. Time, 15 May 1950, p. 28. 55. Watters, p. 162. 56. Ibid., pp. 162-165. 57. Wilkins, Maturing of Multinational Enterprise, p. 268. 58. Later, in a celebrated case in 1977, a highly protectionist Indian government forced Coke's withdrawal after insisting the company reveal the composition of its secret "7X" formula. Yet even the Indian government had allowed Coke to enter and establish bottling operations many years before the Japanese did, as we shall see. Time, 15 May 1950, pp. 28-29; Watters, pp. 192-193. 59. "The Sun Never Sets on Cacoola [sic]," Time, 15 May 1950, pp. 28-29. 60. Fortune, November 1955, p. 84; Coca-Cola Company Annual Report, 1956. 61. Coke had been exported to Japan before World War 11, but the quantity was insignificant, and no Coke direct investment in Japan had occurred in the prewar period. Daiamondosha, Sekai kigy~monogatari: koka kara, pp. 38-39; CocaCola (Japan), p. 14. 62. Coca-Cola Overseas, April 1955, p. 20; Frank H. Moss, "The History of Coca-Cola in the Japanese Market as I Lived and Worked It," unpublished manuscript, Coca-Cola Archives, p. 48. 63. "Koka k ~ r asenryaku" (The strategy of Coca-Cola), in Ekonomisuto, ed., Shagen: K ~ d oseicha ki no Nihon I, 77; Coca-Cola (Japan), p. 15. Coke also established plants on Okinawa and Guam. 64. Coca-Cola Overseas, June 1949, pp. 21ff.; December 1952, pp. 11-12.

Notes to Pages 165-168 65. Daiamondosha, Sekai kigya monogatari: koka k ~ r a p. , 43; Frank H. Moss, "Coca-Cola in the Japanese Market," pp. 20-21, Coca-Cola Corporate Archives. 66. Coca-Cola (Japan), p. 17. Despite these restrictions, however, some Japanese managed to purchase Coke on the then-thriving black market. 67. Keidanren Review 96:12 (December 1985). 68. Frank H. Moss, "The History of Coca-Cola in the Japanese Market," pp. 20, 26-27. 69. See, for example, Letter, Ray D. Spencer to William F. Marquat, 11January 1949, RG 331, Box 1040; Frank H. Moss, "The History of Coca-Cola in the Japanese Market," p. 5. 70. Those approached included the powerful Fujiyama family, which had interests in sugar refining, carbon dioxide manufacturing, and other related fields of industry. Frank H. Moss, "Coca-Cola in the Japanese Market," p. 5. 71. The Takanashi family is related to the Mogi's, the influential clan which operates the Kikkoman soy-sauce house. Indeed, when Takanashi finally managed to set up the Tokyo Coca-Cola Bottling Company, the Mogi's obtained an important equity stake in the new venture. Frank H . Moss, "Coca-Cola in the Japanese Market," p. 100. 72. Letter, Frank H. Moss to author, 21 March 1989. 73. Coca-Cola (Japan), p. 21. Takanashi had made informal inquiries to MOA for a number of years before making formal application in 1953. Interview with Takanashi Nisaburq Tokyo, 1989. 74. The Japanese name for the Food Agency is Shokuryscha. 75. Daiamondosha, Sekai k i g p monogatari, p. 50; Frank H. Moss, "Coca-Cola in the Japanese Market," pp. 4, 6. 76. Interview with Takanashi Nisaburs, Tokyo, 1989. 77. Coca-Cola (Japan), p. 21. 78. Oketa Atsushi, ed., Gaishi kigya in Japan, pp. 152-153; Interview with Takanashi N i s a b u r ~Tokyo, 1989. 79. Frank H. Moss, "Coca-Cola in the Japanese Market," pp. 3, 18; Coca-Cola (Japan), p. 18. 80. Coca-Cola Company, Annual Report, 1956; Frank H. Moss, "Coca-Cola in the Japanese Market," pp. 3, 6; Interview with Frank H. Moss, Cambridge, Massachusetts, and Lakeport, California, 1989. 81. Frank H. Moss, "Coca-Cola in the Japanese Market," pp. 8-9, 37. 82. Interview with Takanashi Nisabura, Tokyo, 1989. 83. The government simultaneously granted an equal amount of foreign exchange to the Japanese branch of Pepsi-Cola. This exchange grant to Pepsi, which had set up a branch in Japan after Coke, may have been expedited in part by the Asahi interests, which had bought a 20% share of the local subsidiary of Coke's principal cola rival in the mid-1950s. Coca-Cola (Japan), p. 21; Frank H. Moss, "Coca-Cola in the Japanese Market," p. 54.

Notes to Pages 169-171 84. The Japanese name for Tokyo Soft Drink Company is Tbkyb Inryb Kagyb. 85. Coca-Cola (Japan), p. 22. ~ 86. The Japanese name for Japan Soft Drink Industries is Nihon I n r Kbgyb. 87. The Japanese subsidiary also produced beverage concentrate for, and coordinated the expansion in Japan of, the Fanta soft-drink line from 1958. Unlike the cola business, Fanta could not be blocked through the exchange-control mechanism because the American company developed local sources of supply for all necessary ingredients. In its early years, Coke's Tokyo bottler relied heavily on Fanta sales to compensate for its highly restricted sales of Coke. Coca-Cola Oapan), pp. 20, 23; Frank H. Moss, "Coca-Cola in the Japanese Market," p. 29-30. Coke's German subsidiary had originally developed Fanta as a substitute for Coca-Cola in Germany during World War 11. Watters, p. 170. 88. Coca-Cola (Japan), pp. 20-21; Letter from Frank H. Moss to the author, 21 March 1989. 89. Interview with Takanashi Nisabura, Tokyo, 1989. The statement that each designated dealer had to sign read: "To comply with regulations stipulated by the Japanese Government Ministries concerned, we, the undersigned, hereby agree that Coca-Cola, which is purchased from [the Tokyo bottler], shall be sold at the minimum price of 35 yen per bottle at the authorized outlet only, and shall not be used for any other purpose." As cited in Frank H. Moss, "Coca-Cola in the Japanese Market," p. 25. 90. Ibid., pp. 7, 30. 91. Oketa, p. 155; Coca-Cola Overseas, December 1966, p. 31. 92. Interview with Takanashi Nisabura, Tokyo, 1989. Kirin annually held a larger share of the Japanese beer market than either of its two major competitors during most of the postwar period. 93. Interview with Takanashi Nisaburq Tokyo, 1989. Mitsubishi had earlier demonstrated its loyalty to the American company when Coca-Cola sought overdraft facilities to finance an expansion in Japan in 1957. Coke approached a number of leading Japanese banks at the time, but "only Mitsubishi Bank," according to Moss, "had confidence in our difficult situation to the extent of showing positive interest in our banking business." Frank H. Moss, "Coca-Cola in the Japanese Market," p. 53. 94. Frank H. Moss "Coca-Cola in the Japanese Market," p. 9. Moss became Operations Manager of the Japan Division, then located in Yokohama, in August 1952; he was promoted to Japan District Manager in January 1955; and was named President of Coca-Cola (Japan) in August 1959. The Japan District at that time encompassed Coke operations in South Korea as well. 95. Asahi, as noted above, had already allied itself with Pepsi-Cola in Japan in the mid-1950s. Yamamoto apparently saw greater potential in the Coke business,

Notes to Pages 171-173 however, and so offered to sever all ties with Pepsi if Coke would grant him a franchise for the entire nation. Ibid., p. 55. 96. Ibid., p. 55. 97. Ibid., p. 40. 98. Ibid., pp. 55-56. 99. Ibid., p. 10. 100. Ibid., p. 39. Kinki Soft Drink is a translation of the Japanese Kinki Inrya. 101. Ibid., p. 39. 102. Pepsi-Cola was also involved in the settlement, although it apparently took a passive role in the talks. 103. The Japanese bottlers of Pepsi likewise agreed to pay the opposition 50 million yen. These "donations" were paid to the opposition over a 3-year period following liberalization of foreign cola in Japan. Frank H. Moss, "Coca-Cola in the Japanese Market," pp. 11, 96. 104. Ibid., pp. 68-70, 73. 105. Deregulation was accomplished by placing these cola ingredients under the "Automatic Foreign Exchange Allocation System." Items so classified were automatically approved for foreign exchange. Coke's Yukigaya plant began the manufacture of Coke concentrate in Japan in November 1960. 106. "Koka kara senryaku" (The strategy of Coca-Cola) in Ekonomisuto, ed. Shagen: Kodo seich~kino Nihon, I, p. 78; Coca-Cola uapan), p. 24. 107. Frank H. Moss, "Coca-Cola in the Japanese Market," p. 98. 108. Presentation of Iwamura Masaomi at the 14th JapanTexas Conference, Oita Prefecture, Japan, 7 September 1987, as cited in "How to Succeed in Business in Japan," (Shawa Denka, November 1987), p. 29. 109. Frank H. Moss, "Coca-Cola in the Japanese Market," p. 12. 110. After the Kirin/Mitsubishi accord, it took Coke just 3 years to conclude bottlers' agreements with powerful local entrepreneurs to cover all 14 remaining territories in Japan. "In retrospect," Moss therefore reflected, "our [subsequent] business moved much faster than we had anticipated." Frank H. Moss, "CocaCola in the Japanese Market," p. 57. Coke did, however, continue to experience problems in subsequent years. In 1969, for example, NHK television mistakenly implied that Coke contained cyclamates, which had just been discovered to cause cancer in animals. This led the Japan Socialist Party's Bun Takake, among others, to argue in the Diet that "CocaCola contains an ingredient harmful to growing children." That same year, the "Anti-Coca-Cola Movement" alleged that Coke's sales methods violated Japanese anti-monopoly laws. Protests such as these apparently were inspired by a campaign of small-scale soft-drink makers who continued to oppose Coke's expansion in Japan. And, in 1971, Coke was severely criticized for using bottles in Japan that allegedly had a dangerous tendency to explode. The negative publicity generated by this misperception required considerable time and resources to cor-

Notes to Pages 174-175 rect. See Nihon keizai shinbtm, 14 December 1968; Yoshi Tsurumi, Harvard Business School "Coca-Cola Industry (Japan) (A)," Case 9-373-320, pp. 1-2, 7-8, 10-11. Although Coke's sales increased rapidly after the accords of 1960, Pepsi never experienced comparable success in the Japanese market: In 1980, for example, Coke held an estimated 89.9% of the domestic cola market, whereas Pepsi held just 9.4%. The differing strengths of the Japanese bottlers, according to at least one Japanese management specialist, explains the contrasting performances of Coke and Pepsi in Japan: Powerful national companies held direct equity stakes in Coke's local bottlers, whereas local owners of Pepsi's Japanese bottling companies were generally less powerful, regional financial institutions. See Ninomiya Kinya, "Foreign Firms' Strategies in Japan: Case Studies of Nestle Japan & CocaCola (Japan)," The Oriental Economist, November 1980, as translated in abbreviated form from the Autumn 1979 special management issue of Chiia k~ron. Others point up additional reasons for Coke's success in Japan relative to Pepsi's. Coke bottlers, for example, apparently were able to benefit from greater scale economies in Japan than were their Pepsi counterparts because Pepsi originally established a larger number of (smaller) bottlers than did Coke. In addition, Coke's local bottlers may have gained a competitive advantage over their Pepsi rivals because Mitsubishi Heavy Industries improved considerably the technical quality and efficiency of the bottling machinery it produced under license from the United States. See, for instance, Tsurumi, pp. 4-5. 111. GSI was originally established as Geophysical Services. Only later did the company become incorporated. 112. "Patrick E. Haggerty," printed biographical report, TI Archives, p. 7; Mary Ann Murphy, "History of the Semiconductor Industry," Circuit News, 15 April 1979. 113. 'Tatrick E. Haggerty," TI Archives, p. 11; Mary Ann Murphy, "History of the Semiconductor Industry," Circuit News, 15 April 1979. 114. "Patrick E. Haggerty," TI Archives, p. 21; Sally L. Merryman, "Application for an Historical Marker Commemorating- the Demonstration of the First Working Integrated Circuit," TI Archives, 19 February 1988, pp. 1-2, 8-9. 115. The Wall Street Journal, 10 May 1954. 116. Jack Kilby, as quoted in Sally L. Merryman, "Application for an Historical Marker," p. 13. 117. "Mark Shepherd, Jr.," printed biographical report, TI Archives, p. 25. 118. Patrick E. Haggerty, "A New Challenge," in "25th Anniversary Observance: Transistor Radio and Silicon Transistor" (Dallas: Texas Instruments, 1980), TI Archives. Haggerty later explained the genesis of the TI-IBM relationship in the following terms: 'During our planning conference of 1957, I got a telephone call from Jim Birkenstock, who was handling licensing for IBM. . . .Birkenstock told me. . . that the reason [IBM agreed to enter into the licensing agreement

Notes to Pages 175-177 with TI in 19571 was because Tom Watson, Jr., had bought 100 or 200 of those [Regency] pocket radios in about 1955 and scattered them among IBM's key executives. . . . Watson] said that if that little outfit down in Texas can make these radios for this kind of money [$50 each], they can make transistors that will make our computers work, too." Ibid. 119. 'Tatrick E. Haggerty," TI Archives, p. 27. 120. "Staking a Claim: An Unprecedented Look at Texas Instruments," The Dallas Morning News, Reprint of 26-29 July 1987 series, pp. 2-3; Interview with J. Fred Bucy, Corpus Christi, 1989. The quotation is a paraphrase by Bucy of a Haggerty statement. 121. "Staking a Claim," The Dallas Morning News, p. 3. 122. TI also expanded its foreign direct investments in this era after it merged in 1959 with Metals and Controls Corporation, a firm that produced electrical controls and other products. This created new TI investments in Mexico, Argentina, Italy, Holland, and France. Ibid. p. 3; author's correspondence with TI. 123. Draft Press Release, TI Archives, January 1965. 124. "Staking a Claim," The Dallas Morning News, p. 3. 125. Ibid., p. 3. 126. Interview with William Roche, Dallas, 1989. 127. Interviews with Mark Shepherd and William Roche, Dallas, 1989. TI also apparently held discussions with the Furukawa interests in the late 1950s to consider a combination in the controls business, but those talks also had broken down by the end of the decade. 128. "Staking a Claim," The Dallas Morning News, p. 3. 129. The Wall StreetJournal, 22 November 1989; Interview with Norman Neureiter, Dallas, 1989. 130. Interview with Mark Shepherd, Dallas, 1989. 131. TI also proposed in the 1963 investment application to manufacture electrical controls at the plant. The company had considered the creation of a yenbase company in Japan, but decided that the foreign exchange and related risks were too great. Interviews with Mark Shepherd, Dallas, 1989, and Joseph Emory, Cambridge, Massachusetts, and Honolulu, 1989. 132. Board Resolution of 26 November 1963, TI Archives. 133. "Application for Validation of Stock Acquisition," Draft of 27 November 1963, TI Archives. 134. Interview with Max Post, Dallas, 1989. 135. TI soon discovered, however, that it was far easier to decide to apply than actually to file an official application. Like other foreign applicants who sought government approval through the FIL, TI was required under Japanese regulations to submit an official request with the Bank of Japan. Once submitted, an oflicial stamp dating and registering the request would be A x e d to the document, marking the official start of the application process. During TI'S initial

Notes to Pages 178-180 attempts to register its FDI application, however, the clerk at the BOJ would literally run away from the receiving window. Only after repeated attempts did TI manage to register its investment application with the Bank. Presentation by Richard Agnich, Cambridge, Massachusetts, 1988; Interview with Richard Rabinowitz, Tokyo, 1987. 136. "Staking a Claim," B e Dallas Morning News, p. 3. 137. Nikhn k ~ g shinbun, y~ 30 November 1964, TI Archives. 138. Telegram, Reischauer to Secretary of State, 12 November 1965, Records of the U.S. Department of State; Henderson, p. 275. 139. Interviews with Max Post and Mark Shepherd, Dallas, 1989. 140. Interview with Mark Shepherd, Dallas, 1989. 141. Yoshioka Tadashi, former MITI official in the Electronics Section, Heavy Industries Bureau, as cited in Nikkei bijinesu, 9 March 1981, TI Archives. 142. "Staking a Claim," B e Dallas Morning News, p. 3. 143. John E. Tilton, International Dif~sion of Technology: B e Case of Semiconductors, p. 139. 144. Mitsubishi Electric Company, "The Texas Story: Memorandum on the License Contract Negotiations with Texas Instruments Inc.," Unpublished manuscript, n.d., TI Archives. p p. 271. 145. Nihon Denshi Kikai Kagyakai (EIAJ), Denshi k ~ g sanjanenshi, The "Big 6" of the industry were NEC, Hitachi, Toshiba, Mitsubishi Electric, Sony, and Matsushita. 146. Franco Malerba, The Semiconductor Business: B e Economics of Rapid G w t h and Decline, pp. 100-110. 147. A major OECD study of the late 1960s reported, for example, that "most" of the major electronic components manufactured by Japanese firms "owe their existence to ideas and inventions made in the United States. This tendency is particularly witnessed in . . . leading technology, such as transistors, semiconductors, integrated circuits, and other active elements." OECD, Gaps in Technology: Electronic Components, p. 45. 148. OECD, B e Semiconductor Industry: Trade Related Issues, pp. 67-70; U.S. Joint Economic Committee, International Competition in Advanced Industrial Sectors: Trade and Development in the Semiconductor Industry, pp. 81-82; U.S. International Trade Commission, Competitive Factors Infuencing World Trade in Integrated Circuits, pp. 54ff.; Tilton, pp. 145-151; EIAJ, p. 271. 149. Tilton, pp. 146, 148. 150. TI Press Release, Draft, January 1965, TI Archives. The statement apparently was not released to the public. 151. Nikkan k ~ g shinbun, p 2 October 1964, TI Archives. 152. Nikkei bijinesu, 9 March 1981, p. 150, TI Archives. 153. Mitsubishi Electric Company, "The Texas Story," Unpublished manuscript, TI Archives. See also EIAJ, p. 273.

Notes to Pages 181-185

154. Nihon kagya shinbun, 14 August 1965; Asahi shinbun, 3 November 1966, TI Archives. 155. Interviews with Joseph Emory, Honolulu, and Cambridge, Massachusetts, 1989. 156. Letter, John T. Connor to S. T. Harris, 16 July 1965, TI Archives. 157. EIAJ, p. 271; Mitsubishi Electric Company, "The Texas Story," TI Archives; Tilton, pp. 146-147. Emphasis added. 158. Nihon keizai shinbun, 31 August 1966; Mitsubishi Electric "The Texas Story," TI Archives. 159. Nihon keizai shinbun, 31 August 1966, TI Archives. 160. Nihon keizai shinbun, 23 May 1967. This was not entirely true, however, for TI, in response to Japanese pressures had decided to offer individual Japanese investors the opportunity to purchase up to 20% or 30% of the proposed local TI subsidiary. This proposal, however, failed to satisfy the authorities. Nihon kagya shinbun, 4 August 1966, TI Archives. 161. Interview with J. Fred Bucy, Corpus Christi, 1989; Nihon keizai shinbun, 6 April 1967. 162. Letter, John T. Connor to Miki Takeo, 19 October 1966, TI Archives. 163. See, for example, The Japan Economic Journal, 22 November 1966. 164. Ibid. 165. Nihon keizai shinbun, 19 November 1966, TI Archives. 166. Electronics, 18 September 1967; Mitsubishi Electric Company, "The Texas Story," TI Archives; Electronic News, 9 October 1967. In addition to these pressures, Japanese electronics firms by the late 1960s had concluded that their own IC capabilities were now sufficient to compete effectively with a local TI operation. Indeed, by January 1968, President Komai of Hitachi-then also serving as Chairman of the EIAJ-flatly stated that "we are no longer afraid of TI's entry" into Japan as a direct investor. Nihon keizai shinbun, 19 January 1968. 167. The exact content of the Mitsubishi offer is not clear. Some evidence indicates that Mitsubishi made explicit proposals that it would establish a 50/50 joint venture with TI in Japan which the U.S. firm could buy out in 3 years, if TI agreed to license its IC patents to Japanese firms. Other evidence suggests.thatthe Mitsubishi proposals offered better terms than the original MITI conditions but did not include an explicit offer on the 3-year buy-out. 168. Interview with J. Fred Bucy, Corpus Christi, 1989; Mitsubishi Electric Company, "The Texas Story, " TI Archives. 169. Interview with J. Fred Bucy, Corpus Christi, 1989. It is not clear why Sony, rather than Mitsubishi or some other Japanese company, took the initiative to act as TI's joint-venture partner. (In his autobiography, Morita says only that "I was approached to try to work out a compromise." Morita Akio, Made in Japan, p. 193.) Possible explanations include the longstanding relationship

Notes to Page 185 between top Sony and TI management; Morita's experience dealing with American businessmen; Sony's overriding interest in exporting ICs to the U.S.; Sony's concern that TI might pressure the U.S. government to bring anti-dumping or other measures against Sony's growing exports to the American market in general; Japanese government promises for special consideration in other projects if Sony could work out an arrangement with TI; and a desire by many Japanese electronics firms that Mitsubishi or some other similarly large and influential company not ally with the U.S. firm to avoid a combination that could well pose a greater threat than that between TI and Sony. Interviews with Richard Agnich, Dallas, and J. Fred Bucy, Corpus Christi, 1989; Nikkei bijinesu, 9 March 1981, TI Archives. The author was unable to ascertain Morita's views on these and related matters despite numerous attempts to do so. 170. Nihon keizai shinbun (English edition), 23 January 1968; Nikkei bijinesu, 9 March 1981, TI Archives. TI representatives also met repeatedly with Totani S h i n z ~head of the Electronics Division in MITI's Heavy Industries Bureau, and with government officials from MOF, the BOJ, and other public agencies during the course of the negotiations. 171. Matsushita Electric had attempted earlier in 1967 to gain access to TI'S patents through its relationship with Philips. This relationship had begun in 1952, when Matsushita and Philips established Matsushita Electronics as a joint venture in Japan. Matsushita Electric, during talks with Philips to renew certain technology licensing agreements, pressed the European firm-which had crosslicensing arrangements with TI-to force TI to license its IC patents to Matsushita Electronics. That effort failed, however, because TI refused to allow Philips to re-execute its TI patent licenses for the benefit of Matsushita Electronics. Matsushita therefore joined the EIAJ group in its negotiations with the U.S. company. Nihon keizai shinbun, 1 July 1967. O n the genesis of the Matsushita-Philips tie, see Takase S b t a r ~ed., Gaishi d~nyiito kaisha keiei, pp. 144-151. 172. Airgram, Johnson to Department of State, 2 May 1968, Records of the U.S. Department of State. 173. See, for example, Nihon keizai shinbun, 21 January 1968. 174. Because the Japanese government had not yet granted TI local patent protection for its IC technology, Japanese firms agreed to make "advance payments" to TI on sales of products in Japan which incorporated the Kilby invention-a "very unusual agreement," in the words of former TI Chief Counsel William Roche, which was occasioned by the continued refusal of the authorities to issue local patents to the American company. Airgram, Johnson to Department of State, 2 May 1968, Records of the U.S. Department of State; Interview with William Roche, Dallas, 1989. 175. Interview with William Roche, Dallas, 1989. Although TI had thus agreed to license its key IC patents to its major Japanese competitors, it refused

Notes to Pages 186-191 to license related know-how to Japanese firms. Interview with J. Fred Bucy, Corpus Christi, 1989. 176. Interview with J. Fred Bucy, Corpus Christi, 1989. 177. Interview with Richard Agnich, Dallas, 1989; various correspondence, TI Archives. 178. "Japan: History," Unpublished report, TI Archives. 179. Interview with Norman Neureiter, Dallas, 1989. Indeed, as late as 1989, TI'S market share for ICs in Japan-estimated at roughly 3%-stood at only half of what the U.S. firm had attained in other major overseas markets. The Wall Street Journal, 22 March 1989. O n the other hand, in no other overseas market did TI face the competitive challenge that now confronted it in Japan. 180. The Japanese authorities did, however, grant certain limited patents to TI in 1977 based on the U.S. firm's earlier applications. The Wall Street Journal, 24 November 1989. 181. Interview with Norman Neureiter, Dallas, 1989. 182. IBM, "IBM Japan: A Chronological Summary, 1925-1974," Chapter 2; Foreign Service Despatch, U.S. Embassy Tokyo to Department of State, 2 September 1960, Records of the U.S. Department of State. 183. Interview with James Birkenstock, Boynton Beach, Florida, 1987; W. David Gardner "James Birkenstock: IBM Executive," Computer Systems News, 7 November 1988. 184. IBM, "IBM Japan: A Chronological Summary, 1825-1974," Chapter 2; Eugene J. Kaplan, Japan: The Business-GovernmentRelationship, pp. 79-80. 185. Kaplan, pp. 80-84; Interview with James Birkenstock, Boynton Beach, Florida, 1987. 186. Interview with James Birkenstock, Boynton Beach, Florida, 1987. 187. The quotation is Birkenstock's paraphrase of the MITI message, as cited in W. David Gardner, "James Birkenstock: IBM Executive." See, also, Johnson, pp. 246-247. 188. Interview with James Birkenstock, Boynton Beach, Florida, 1987. 189. Foreign Service Despatch, Andrew B. Wardlaw to Department of State, 2 September 1960, Records of the U.S. Department of State. 190. W. David Gardner, "James Birkenstock: IBM Executive"; Interview with' James Birkenstock, Boynton Beach, Florida, 1987. 191. To maintain future leverage, IBM therefore limited its patent licenses with Japanese firms to the same 5-year period. 192. IBM also agreed to sell 1% of the equity in its local subsidiary to the Japanese members of IBM Japan's Board of Directors, thereby enabling the government to maintain its principle of preventing the establishment of 100% foreign-owned Japanese companies in major domestic industries. W. David Gardner, "James Birkenstock: IBM Executive," Computer Systems News, 7 November 1988; Interview with James Birkenstock, Boynton Beach, Florida, 1987. O n the

'

Notes to Pages 191-198

IBM entry negotiations, also see Marie Anchordoguy's highly informative Computers Inc.: Japan's Challenge to IBM, pp. 22-24. 193. See, for example, Kaplan, pp. 80ff. 194. See, in particular, "Japanese-U.S. Trade Relationships," unpublished memorandum, FMC Archives, Document No. AR-71-05492:5; "Memorandum of Conversation: U.S. Trade in Computers with Japan," 17 June 1977, Records of the U.S. Department of State. 195. "Highlights of DuPont's Activities in Japan," Unpublished report, DuPont Japan, Ltd. Corporate Records. 196. Foreign Service Despatch, Andrew B. Wardlaw to Department of State, 7 October 1960, Records of the U.S. Department of State. 197. Ibid.; Dupont Far East, "Nihon ni okeru dyupon no ayumi" (The history of DuPont in Japan), Unpublished report, DuPont Japan Corporate Records; Interview with William Dizer, Tokyo, 1986. 198. The figure 289 excludes 24 yen-base companies established under exceptional conditions for prewar investors allowed to re-enter after World War 11. Of the 265 yen-base companies set up between 1956 and 1963, fully 75, or about 35%, entered Japan in 1962 and 1963. MITI data from the files of Mira Wilkins. 199. Ibid. 200. Foreign Service Despatch, Philip H. Trezise to Department of State, 17 June 1960, Records of the U.S. Department of State. 201. Interview with Robert Noyce, Austin, Texas and Cambridge, Massachusetts, 1990. 202. Ibid. 203. Ibid. 204. Interview with Richard Hodgson, New York, and Cambridge, Massachusetts, 1990. 205. Ibid. O n the NEC-Fairchild technology agreement, see, also, NEC, Nihon denki bbushiki kaisha nanajanen shi, p. 304. 206. See Wilkins, The Maturing of Multinational Enterprise, p. 43. 207. Interview with Dr. Albert Seig, President, Kodak Japan, Tokyo, 1986. 208. ACCJ, "U.S. Manufacturing Investment in Japan," Unpublished report, 31 May 1979, pp. 38-39. 209. Calculated from U.S. Department of Commerce, Selected Data on US. Direct Investment Abroad, 1950-76, pp. 1, 11, 21. 210. U.S. Department of Commerce, Investment in Japan, pp. 63, 103-114. 211. Indeed, just for the period 1949-1965, American companies concluded some 1,875 licensing agreements with Japanese firms in the multi-year (Class A) category alone. In addition, U.S. agreements apparently numbered over 5,000 for the period 1950-1970 as a whole. This figure is based on the assumption that U.S. firms accounted for slightly more than half of all such agreements (Classes A and B, the latter representing contracts of less than one year duration) for the 20-year

Notes to Pages 198-202 period, extrapolating from trends and percentages for Class A contracts for the 1949-1965 period. ACCJ, "Statistical Information Regarding Licensing Agreements Concluded Between Japanese and Foreign Firms: JFY 1949-64," Unpublished report, (Tokyo: ACCJ, June 25, 1965). 212. See, for example, ACCJ, "Statistical Information Regarding Licensing Agreements"; Nihon G i n k ~(Bank of Japan), Gaishi d~nyiikankei shuya ninka anken ichiran, p. 3. 213. Interview with J. Fred Bucy, Corpus Christi, 1989.

FIVE

The Inner Door, 1970-1980

1. As cited in Robert Ozaki, p. 131. 2. O n the lively debates within Japan over capital liberalization, see, for example, Nihon Keizai Shinbunsha, ed., Shihon jiyiika to nihon keizai; Kanno Masao, Shihon jiyiika to kokusai k y m ryoktt; and Shimoja Shin-ichir~,Shihon jiyiib no genj~to tenbo. 3. As cited in Allan Pearl, "Liberalization of Capital in Japan-Part I," Harvard International Law Journal 13:82. 4. As cited in Ibid., p. 255. 5. As cited in Ibid., p. 73. 6. The authorities previously had permitted the establishment of "yen-base companies," as earlier noted, but this "liberalization" was greatly limited, and had been reversed in mid-1963. 7. Under the 1967 guidelines, the government pledged to approve autornatically the foreign acquisition by any specfic individual of up to 5% of the stock in an existing Japanese corporation. All foreign investors were prohibited from acquiring more than 10% or 15% in such a corporation, however, depending on the specific industry in question. In addition, the relatively limited amounts of Japanese stocks in many key companies available for purchase through the Tokyo Sto.ck Exchange prevented attempts by U.S. or other foreign companies from acquiring significant equity stakes in such Japanese firms through the open market. 8. The "Ten Commandments," issued by MOF in September 1967, read: 1. Invest in industries where a fifty percent equity is automatically approved rather than in industries where a hundred percent is possible. 2. Avoid industries in which goods are produced mainly by medium to small factores. 3. Avoid restrictive arrangements with overseas parent companies or affiliates. 4. Cooperate with Japanese producers in the same industry in order to avoid "excessive competition."

Notes to Pages 202-210 5. Contribute to the development of Japanese technology. 6. Help promote Japanese exports. 7. Ensure that in a joint venture the number of Japanese directors reflects the Japanese equity percentage. 8. Avoid layoffs and plant closures that might disrupt the Japanese labor market. 9. Cooperate in maintaining Japan's industrial harmony and help in the achievement of her economic goals. 10. Avoid concentrating investments in any particular industry or industries. T. F. M. Adams and Noritake Kobayashi, The World of Japanese Business (Tokyo: Kodansha International, 1969), pp. 239-240, as cited in Dan Fenno Henderson, Foreign Enterprise i n Japan: Laws and Policies, p. 242. 9. The exempted industries were agriculture, forestry and fisheries; refining and sales of petroleum; leather manufacturing; manufacturing, sales, and rental of computers; information processing; retail operations with more than 11 shops; and real estate. ACCJ, Direct Foreign Investment i n Japan, p. A-10. 10. See below. 11. In addition, without the target company's agreement, all foreign investment in a single existing Japanese corporation could not exceed 25%. 12. Henderson, pp. 254-262. 13. Ibid., pp. 267ff. 14. Article VIII, FIL. 15. Other Japanese automobile makers followed this and similar strategies to erect defenses against possible foregn takeovers following capital liberalization. See, for example, Amagai Shbgo, Nihon jid~shakcigyci no shiteki tenkai, p. 223. 16. Nakashima Shazs, Kabushiki no mochiai to kigya h q p. 46. 17. As cited in Henderson, p. 264. 18. Don Whitehead, The Dow Story: The History of the Dow Chemical Company, p. 117. 19. Studley, Shupert & Co., "The Dow Chemical Company," p. 4; Jules Backman, The Economics of the Chemical Industry, p. 111. Caustic soda is used in the manufacture of an extensive range of products, including pulp and paper, aluminum, steel, textiles, and soap. 20. Studley, p. 230; Backman, p. 319; Dow Chemical Company, Annual Report, various years. 21. Whitehead, pp. 247-249ff.; Dow Chemical Company, Annual Report, various years. 22. O n the early development of the Japanese chemical industry, see Uchida Hoshimi, 'Western Big Business and the Adoption of New Technology in Japan: The Electrical Equipment and Chemical Industries 1890-1920," pp. 145-172.

Notes to Pages 210-213 23. See, for example, Backman, pp. 234, 351; Kurt Lanz, Around the World with Chemistry, pp. 197-198. 24. Yoshida Toyoaki, Washington correspondent of Nihon keizai shinbun, in The Japan Economic Journal, 26 November 1968. 25. The Japan Economic Journal, 26 November 1968. Also, see ACCJ, "U.S. Manufacturing Investment in Japan," p. 85. 26. Hoechst, the German chemical manufacturer, alone concluded some 60 separate agreements to transfer technology and know-how to Japanese firms after World War 11, in addition to establishing its own Japanese joint venture. Moreover, Hoechst's engineering subsidiary, Uhde, designed and built 57 chemical plants in Japan during the same era. Lanz, p. 198. 27. O n overall postwar trends in U.S. foreign direct chemical investment, see Backman, pp. 284-286ff. 28. Whitehead, p. 221. 29. Chemical &Engineering News, 22 July 1974, p. 4. 30. Backman, p. 289. 31. The Japan Economic Journal, 26 November 1968. "Major European chemical enterprises," this same report continued, "are strongly desirous of advancing into the Japanese market. . . .It appears that the policy adopted by the Japanese Government toward the advance of foreign capital is not sufficiently understood by big chemical interests in Europe, which so far have considered internationalization of economic activity as a natural course." 32. Backman, p. 289. 33. Telegram, Shoesmith to Department of State, July 1975, Records of the U.S. Department of State. 34. Louis Wells, "Caustic Soda in Japan (A)," Harvard Business School Case No. 9-378-203, p. 3. Dow had told shareholders in its 1973 annual report that "strong growth in the Japanese economy" had motivated, among other things, "strong sales" of its chlorine derivatives. Dow Chemical Company, Annual Report, 1973. Caustic soda and chlorine are co-products of the electrolytic production process. 35. Chemical & Engineering News, 2 September 1974, p. 6. 36. Chemical & Engineering News, 22 July 1974, p. 4. 37. Wells, "Caustic Soda in Japan (A)," p. 3; Telegram, Shoesmith to Department of State, July 1975, Records of the U.S. Department of State. 38. Although the majority of domestic firms opposed Dow's entry, it is reported that a number of Japanese producers that maintained buyer-supplier relationships with Dow privately favored the entry. Wells, "Caustic Soda in Japan (A)," p. 12. 39. Wells, "Caustic Soda in Japan (A)," pp. 1-2. 40. John W. Bennett et al., "Industrialization and Social Deprivation," p. 461; Wells, "Caustic Soda in Japan (A)," pp. 5-6.

Notes to Pages 214-217 41. It was reported in 1974 by one industry trade journal, for example, that Japanese caustic-soda capacity "must be expanded from the present 3.8 million metric tons a year. . . to at least 4.5 million metric tons a year to meet expected demand in 1976. Japanese caustic soda output, some 3.23 million metric tons in 1973, has grown at a 12% average annual rate for the past ten years, and at 10.5% for the past five years." Chemical & Enginewing News, 8 April 1974. 42. Telegram, Shoesmith to Secretary of State, July 1975, Records of the U.S. Department of State. Also, see Wells, "Caustic Soda in Japan (A)," p. 9. 43. Wells, "Caustic Soda in Japan (A)," p. 10. 44. Ibid., p. 8. 45. Wells, "Caustic Soda in Japan (B)," Harvard Business School Case No. 9-378-204, p. 1. 46. 'What particularly irks the U.S. chemical giant," one U.S. business weekly reported in the midst of the controversy, "is that it would [use] its highly efficient diaphragm process at its proposed chlorine and caustic-soda facility, rather than the mercury method employed by most Japanese producers." Business Week, 5 October 1974, p. 39. 47. Wells, "Caustic Soda in Japan (A)," pp. 4-6fi. 48. Wells, "Caustic Soda in Japan (A)," pp. 4-6ff. The relative inefficiency of the Japanese industry was nothing new: One authoritative study reported, for example, that during the 1950s as well the price of Japan's soda products exceeded world prices. Allen, Japan's Economic Recovery, p. 121. 49. Interview with Theodore Peightol, Rancho Murieta, California, and Cambridge, Massachusetts, 1990. 50. As cited in The New York Times, 16 October 1975. 51. Wells, "Caustic Soda in Japan (A)," p. 10; The Wall StreetJournal, 19 October 1977. 52. Chemical & Engineering News, 8 April 1974, p. 16. 53. MITI did, however, approve Dow's proposal to build 3 small, downstream resin and agricultural chemical plants. Telegram, Hodgson to Secretary of State, October 1975, Records of the U.S. Department of State. The Ministry derived its power to decide on Dow's application through its important advisory role to the Foreign Investment Council. To this Council, MITI was charged with evaluating proposed changes in Dow Chemical Japan's articles of incorporation which would allow the US. firm to engage in specific fields of chemical production. 54. The New York Times, 16 October 1975. 55. Wells, "Caustic Soda in Japan (A)," p. 5. 56. Ibid., p. 5. 57. Chemical Marketing Reporter, 10 May 1976, pp. 3, 20. 58. The Wall Street Journal, 19 October 1977. 59. Ibid.

Notes to Page 218 60. Interview with Theodore Peightol, former Director, Business Development, Dow Chemical Japan, Rancho Murieta, California, and Cambridge, Massachusetts, 1990; f i e Wall Street Journal, 19 October 1977. 61. In technical terms, Dow had never fomzally approved the project. This is apparently because Dow's regional and area managers, who first would have had to make a recommendation to the Dow Board of Directors, hesitated to take such formal action unless the economic and other aspects of the project appeared sufficiently attractive and viable. Interviews with Theodore Peightol, Rancho Murieta, California, and Cambridge, Massachusetts, 1990, and Robert Baker, Palm City, Florida, and Cambridge, Massachusetts, 1990. 62. There is some disparity in the recollections of the two chief Dow managers then in Japan who worked on the soda project regarding the economic feasibility studies for the proposed plant. Robert Baker, then President of Dow Japan, recalls that there was always some question as to the economic viability and attractiveness of a Dow chlor-alkali plant in Japan, as opposed to importing the finished products. Theodore Peightol, then Director of Business Development at Dow Japan, maintains, however, that the initial studies did indeed find the Japanese project advisable on purely economic grounds. Only the political aspects of the project, such as MITI's hesitation and the domestic industry's strong opposition to the project, Peightol maintained in the course of two lengthy interviews with the author, blurred the logic of a Dow investment: "The economic picture for our having a world-scale plant in a market that was just opening up, a very rapidly growing market," Peightol stated, "made it very attractive. At least at that time [mid-1970s], Dow management could well have decided to make a major investment. It would have been in Dow's interest to make the investment," Peightol concluded, "provided the political-economic aspects of the project could be worked out. But those aspects of the project were never worked out." According to both men, Peightol was the officer with longer experience in economic evaluation projects of this type (due, in part, to his background in the Economic Evaluation and Production Planning unit at Dow), and held direct responsibility for the Japan feasibility studies. Moreover, Richard E Bechtold, then Director of Dow's Corporate Product Division at U.S. headquarters, asserted, in a separate interview with the author, that the economicsof the proposal was indeed attractive. 'We did look seriously" at the project, according to Bechtold, "and after carefully exmaining energy supplies, distribution, local markets, and numerous other factors, Dow determined that the project proposal made good economic sense." Nevertheless, Bechtold maintained, "we felt that the situation in Japan was a closed one," and so, eventually, Dow chose to terminate the chlor-alkali project in Japan altogether. Interviews with Richard F. Bechtold, Moraga, California, and New Haven, 1991; and Robert Baker, Palm City, Florida, and Cambridge, Massachusetts, 1990; Theodore Peightol, Rancho Murieta, California, and Cambridge, Massachusetts, 1990. Also, see ChemicalAge, 22 July 1977, p. 2.

Notes to Pages 218-220 63. See, for example, Nikkei sangp shinbun, 11 August 1980; Kagaku kagya nippa, 28 March 1982; Nikkei sangyb shinbun, 25 November 1982; The Japan Economic Journal, 28 December 1985. 64. Interview with Edward Rogers, former President, Dow Chemical Japan, Midland, Michigan, and Cambridge, Massachusetts, 1990; Nikkei sangyo shinbun, 25 November 1982. 65. Nation's Business, November 1982, pp. 46-48 66. Harry M. Petrakis, The Founder's Touch: B e L$e of Paul Galvin of Motorola, pp. 62, 139, 147-149, 168ff., 211-213; Nation's Business, November 1982, pp. 46-48; IEEE Spectrum, July 1988, pp. 39-43. 67. OECD, The Semiconductor Industry, p. 111. 68. Interview with Stephen Levy, San Diego, and Cambridge, Massachusetts, 1989. 69. OECD, B e Semiconductor Industry, pp. 48-49; Electronic News, 29 May 1972 and 20 November 1972; Interviews with George Needham, Phoenix, and Cambridge, Massachusetts, 1989; author's correspondence'with Nagata Takashi, Nippon Motorola, 1991. 70. Interviews with George Needham, Phoenix, and Cambridge, Massachusetts, 1989. 71. Interview with George Needham, Phoenix, 1990. 72. OECD, The Semiconductor Industry, pp. 48, 117; Clyde Prestowitz, %ading Places, p. 195. 73. Calculated from data in U.S. International Trade Commission, Competitive Factors Influencing World Trade in Integrated Circuits, pp. 115, 123. 74. See Chapter 4. 75. American Chamber of Commerce in Japan et al., Direct Foreign Investment in Japan: B e Challengefor Foreign Firms, p. A-8. 76. Nihon keizai shinbun, 19 January 1968; Interview with Lester Hogan, former President & CEO, Fairchild, Atherton, California, and Cambridge, Massachusetts, 1990. 77. Interviews with George Needham, Phoenix, and Cambridge, Massachusetts, 1989. O n selling foreign semiconductors in Japan through exports versus local production, see Janice McCormick, "Nippon Motorola (A)," Harvard Business School Case No. 9-487-029. In addition, in 1962 the firm established Motorola Service Co., Ltd., to purchase electronic components from Japan. Author's correspondence with Nagata Takashi, Nippon Motorola, 1991. 78. Interview with Robert Galvin, Schaumberg, Illinois, 1989. Galvin had considered a yen-base investment before such investments were prohibited in mid1963; but deemed the risks too great: "Most of us were not geniuses, and were concerned that, having put money in, we would never get it back. Our concern was not diminished by the cold reception we were getting from the3Japaneseotherwise." As cited in Prestowitz, p. 197.

*

Notes to Pages 221-226

79. Interview with Robert Galvin, Schaumberg, Illinois, 1989. 80. Telegram, Edwin Reischauer to Secretary of State, 1 December 1965, Records of the U.S. Department of State. 81. Interview with Robert Galvin, Schaumberg, Illinois, 1989. Through much of this era, however, Galvin and other top Motorola executives opposed strong U.S. government intervention in private industry. Only later did Galvin, for one, change his position and come out in favor of heightened public involvement in private international trade and investment affairs. Interview with Stephen Levy, Phoenix, 1990. 82. Interview with Stephen Levy, Phoenix, 1990. 83. Ibid. 84. Interviews with Stephen Levy, San Diego, and Cambridge, Massachusetts, 1989, and Nagata Takashi, Tokyo, 1989. 85. Interview with Lester Hogan, Atherton, California, and Cambridge, Massachusetts, 1990. 86. ACCJ et al., Direct Foreign Investment in Japan, p. A-9 87. Electronic News, 15 May 1972. 88. Electronic News, 15 and 29 May 1972. 89. Interview with Stephen Levy, Phoenix, 1990. 90. Interview with William Weisz, Phoenix, 1990. 91. Motorola Corporate Records; Electronic News, 29 May and 20 November 1972; B e Japan EconomicJournal, 2 December 1975. Alps, however, bought out Motorola's shares in the joint venture in 1968. Thereafter a wholly owned subsidiary of Alps Electric, the company marketed its products under the Alpine label. Author's correspondence with Nagata Takashi, 1991. 92. Interviews with Stephen Levy and William Weisz, Phoenix, 1990. 93. Interview with George Needham, Phoenix, 1990. 94. Interview with Stephen Levy, Phoenix, 1990. 95. Interviews with Robert Galvin, Schaumberg, Illinois, 1989, and Stephen Levy, George Needham, and William Weisz, Phoenix, 1990. 96. Interviews with Robert Galvin, Schaumberg, Illinois, 1989, and William Weisz, Stephen Levy, and George Needham, Phoenix, 1990; 7he Japan Economic Journal, 18 November and 2 December 1975. 97. Interviews with William Weisz and George Needham, Phoenix, 1990. 98. Interviews with William Connor and Stephen Levy, Phoenix, 1990. 99. ACCJ et al., Direct Foreign Investment in Japan, pp. A-9, A-10; U.S. International Trade Commission "Competitive Factors Influencing World Trade in Integrated Circuits," pp. 58-59. At the same time, however, the authorities instituted new measures to assist Japanese-controlled semiconductor firms and continued to restrict acquisitions to friendly takeovers. See, for example, Semiconductor Industry Association, "The Impact of Japanese Market Barriers in Microelectron-

Notes to Pages 226-23 1 ics," pp. 29-30. The Japanese government had announced in 1973-just prior to Motorola's conclusion of the joint-venture agreement with Alps-that it would deregulate capital inflows in the semiconductor industry in December 1974. By the time of the 1973 announcement, however, Motorola had already invested considerable time and other resources in the proposed AMSK venture with Alps, and therefore decided to stay the course. Interview with George Needham, Phoenix, 1990. 100. Interview with William Weisz, Phoenix, 1990. 101. Interview with Stephen Levy, Phoenix, 1990. 102. Interview with William Weisz, Phoenix, 1990. 103. OECD, The Semiconductor Industry, p. 111. For a comparison of IC consumption rates in the U.S., Japan, and the EEC from 1974 to 1978, see U.S. International Trade Commission, Competitive Factors Influencing World Trade in Integfated Circuits, pp. 97, 115, 123. 104. Interview with William Weisz, Phoenix, 1990. 105. Interview with William Connor, Tempe, Arizona, 1990. 106. The Japan Economic Journal, 2 December 1975. 107. Ibid. 108. Interview with Stephen Levy, Phoenix, 1990. 109. Unless otherwise noted, events relating to Motorola's acquisition of AizuTaka are drawn from an interview with William Connor, Tempe, 1990. Connor was one of two key Motorola officials who directly orchestrated the Aizu acquisition. 110. Interview with Stephen Levy, Phoenix, 1990. 111. The Wall Street Journal, 9 October 1980. 112. Interview with Stephen Levy, Phoenix, 1990. 113. Ibid. 114. The Wall Street Journal, 26 November 1986; Electronic Engineering News, 18 May 1987; Interview with Richard Heimlich, Phoenix, 1990. 115. Interview with Stephen Levy, Phoenix, 1990. 116. The question of how Ford should manage its Yokohama properties kept the Japan issue alive at the American company's headquarters throughout the postwar period. In addition, Ford had held intermittent talks with Toyota from the late 1940s over the possibility of establishing some form of joint venture in Japan. These talks included a Toyota proposal in 1960 to set up a Japan-based joint venture to produce Toyota's new "People's Car." Ford initially hesitated to accept the proposal, in part because the Japanese carmaker had suggested a 40%-40%-20% Toyota Motor-FordToyota Sales joint venture, which would have enabled the two Japanese firms to maintain majority ownership of the venture. Toyota later offered to allow Ford to own as much as 50% of the proposed venture, but internal Ford documents suggest that management at the American

Notes to Pages 231-233 company still hesitated because of anticipated ~roblemswith pricing, managerial coordination, the nature and amount of Ford technical assistance Toyota sought, and for other reasons. See, for example, FMC Archives, Doc. Nos. AR-65-71:31 and AR-67-14:l. 117. Office of Facilities and Operations Planning, Ford International "The Japanese Automotive Market," July 1957, Unpublished report, FMC Archives, Doc. NO. AR-70-15:l. 118. Intra-Company Communication, C. L. Goyert to H. E. Jones, "Japanese Automotive Competition in World Markets," 16 March 1967, FMC Archives, DOC.NO. AR-70-20:2. 119. See, for example, Report, GM Overseas Policy Group, GM Overseas Operations [hereinafter, GMOO], 4 January 1966, GM Corporate Records; various memoranda, 1967, Chrysler Corporate Records. 120. General Motors, however, had set up a Foreign Distributors Division Office in Japan by 1952. Interview with Barton Brown, former Vice President, Overseas Operations Division, GM, Austin, Texas, and New Haven, Connecticut, 1991. 121. O n tariffs and related controls, see, for example, William C. Duncan, US.Japan Automobile Diplomacy: A Study in Economic Confrontation, pp. 1-2. 122. William C. Duncan, U.S.-Japan Automobile Diplomacy, p. 49; The Japan EconomicJournal, various issues; ACCJ, US. Manufacturing Investment in Japan, p. 17. 123. Joint ventures in Japan posed a number of difficulties for U.S. auto firms, at least according to Henry Ford I1 in his private discussions with Japanese business leaders in 1968. A venture with a Japanese firm not engaged in the automotive business did not appear economically "attractive," in Ford's opinion, yet to establish a new company with an existing Japanese manufacturer-even if permitted-would raise significant problems with respect to transfer pricing, together with distribution and franchising conflicts in the domestic market. "Japanese-U.S. Trade Relationships," internal report, 28 October 1968, FMC Archives, Doc. No. AR-71-0549235. 124. Inter-Company Communication, H. E. Jones to Robert Stevenson, 25 April 1967, FMC Archives, Doc. No. AR-70-20:2. 125. "Japan: Suggested Strategy," Internal Report, 22 June 1967, FMC Archives, Doc. No. AR-71-05492:5; "Chrysler-MitsubishiRelationship: Chronology of Significant Events," Chrysler Corporate Records. 126. GM Overseas Policy Group, GMOO "Status Report on Japan," 10 September 1968, GM Corporate Records. 127. The quotation is a paraphrase of Ford's remarks, as cited in "Japanese-U.S. Trade Relationships," internal report, 28 October 1968, FMC Archives, Doc. No. AR-71-05492:5. Ford earlier had expressed his frustration with Japanese controls on foreign auto access in a meeting with Vice President Hubert Humphrey.

Notes to Pages 233-235 "Following our meeting in Detroit," Humphrey wrote Ford in May 1967, just after their conversation, "I asked the Department of State for a report on the Japanese laws and practices which restrict our automobile exports to Japan and restrict direct foreign investment there. Your concern," Humphrey concluded, "is well founded." Letter, Hubert Humphrey to Henry Ford 11, 23 May 1967, FMC Archives, Doc. No. Ar-71-05492:5. 128. The quotation is a paraphrase of Watson's remarks, as cited in "JapaneseU.S. Trade Relationships," internal report, 28 October 1968, FMC Archives, DOC.NO. AR-71-05492:5. 129. The 10 firms were Daihatsu, Fuji, Hino, Honda, Isuzu, Mitsubishi, Nissan, Suzuki, TGYGKGgya, and Toyota. 130. William C. Duncan, US.-JapanAutomobile Diplomacy, Chapter 3. 131. "Japanese-U.S. Trade Relationships," internal report, 28 October 1968, FMC Archives, Doc. No. AR-71-05492:5. 132. "United States-Japan Automobile Trade Policy Discussions: 12-13 December 1967," unpublished report, FMC, 20 December 1967, FMC Archives, Doc. NO. AR-71-05492:5. 133. Overseas distribution was critical to MHI because growth in the domestic market was constrained by limited dealership outlets and other factors. Exports therefore offered MHI not only the opportunity for greater sales but also a viable means of achieving volumes necessary to realize significant scale economies. Interview with Robert Perkins, Vice-president, Washington Affairs, Chrysler Corporation, and Member of the Board, MMC, Washington, D.C., 1989. 134. The original plan called for establishment of a trading and distribution firm as a first step, to be followed by formation of a full-fledged manufacturing company. These two steps were collapsed into one during the course of the negotiations. MMC was formally established as a separate corporate entity in May 1970. Various internal memoranda, Chrysler Corporate Records. 135. MHI had developed a relatively strong position in trucks, but was still weak in the passenger-car industry. 136. Chrysler had met with managers of other Japanese auto companies prior to its contract talks with MHI. Those earlier contacts, however, had produced little progress towards Chrysler's goal of a direct investment in Japan. Chrysler Corporate Records; Interview with Robert Perkins, Washington, D.C., 1989. 137. Under this partial liberalization scheme, foreign auto companies would gain automatic approval to invest up to 50% of the capital in newly established auto ventures in Japan with domestic firms not engaged in the automotive trade. However, MITI would retain formal powers to deny FDI applications from any individual foreign investor to acquire more than 7% of the equity in an existing Japanese auto firm, or to invest in a joint venture with such a firm. 138. MITI did, however, initially raise numerous questions about the pro-

Notes to Pages 235-237 posed MHIKhrysler deal. Only gradually and reluctantly did the Ministry signal its willingness to accept the arrangement. 139. l%eJapan Economic Journal, 12 January 1971. 140. Johnson, p. 288. 141. Ford had previously held talks with Tayb Kagya and other Japanese firms over joint production of automatic transmissions, tractors, and other products in Japan. 142. Various internal reports and memoranda, FMC Archives. 143. The proposed Ford stake in Tbyb'Kagya varied between 20% and 35% over the course of these talks. Initially, Henry Ford 11and Matsuda Kbhei tentatively agreed upon a 20% Ford stake. Based on a re-examination of Tbyb's then serious business difficulties and Ford's desire to gain a more substantial position in the Japanese company, however, in the spring of 1970 Ford changed its position and proposed instead a 35% buyout, and still later changed the offer to a 20% initial investment, coupled with an option to increase Ford's total investment to 35% after 10 years. Matsuda rejected these proposals, but Ford remained dissatisfied with a 20% share. Various internal reports and memoranda, FMC Archives; 7AeJapan EconomicJournal, 29 September 1970. 144. Interviews with Will Scott, former Vice-president, Corporate Planning Staff, FMC, Dearborn, Michigan, and William Wilkinson, former officer, Corporate Planning Staff, FMC, Salem, South Carolina, and San Francisco, both in 1989; Letter, Will Scott to author, 26 July 1989; Various internal reports, letters and memoranda, FMC Archives, Doc. No.'s AR-71-095426 and AR-84-56536. 145. Interviews with James Roche, former Chairman of the Board, GM, Bloomfield Hills, Michigan, 1989, and Barton Brown, GM's chief interlocator at the 1969 meeting, Austin, and New Haven, 1991; various internal reports, GM Corporate Records. 146. Interview with James Roche, former Chairman of the Board, GM, Bloomfield Hills, Michigan, 1989. 147. In addition to the Japanese government, the United States government also significantly constricted GM's options. In particular, the U.S. Department of Justice, on anti-trust grounds, maintained that GM should be excluded from affiliation with any Japanese company that had established U.S. distribution. Interview with Barton Brown, Austin and New Haven, 1991. 148. GM Overseas Policy Group, Corporate Executive Committee, GM, "GM Foreign Ownership Policy and Japanese Joint Venture Proposal," Draft of 27 February 1970, internal report, GM Corporate Records. 149. Memorandum, R. C. Gerstenberg to Executive Committee, 27 April 1971, GM Corporate Records. 150. Morita, pp. 194-195; The Japan Economic Journal, 2 December 1969 and 27 July 1971. 151. GM would eventually pay about $57 million for this 34.2% share. Inter-

Notes to Pages 237-239 view with James Roche, Bloomfield Hills, Michigan, 1989; GM Corporate Records. 152. GM Overseas Policy Group, Corporate Executive Committee, GM, "Investment in Overseas Ventures," internal report, 6 June 1972, GM Corporate Records. 153. Various internal memoranda, Chrysler Corporate Records. 154. Henderson, p. 264. 155. Nihon keizai shinbun, 28 May 1969. Although Chrysler had negotiated the right to purchase 35% of MMC's equity, the U.S. automaker never possessed as much as 25% of MMC. Financial difficulties and other factors first led Chrysler to amend its accord with MMC, dividing its planned 35% investment into 3 investment tranches. Under the revised terms, Chrysler would purchase 15% of MMC's total stocks by September 1971; an additional 10% by June 1972; and a final 10% by June 1973. (The Japanese press, not advised of the true causes of the investment slowdown, incorrectly speculated that it had been caused by concern over government authorization of the joint-venture plan. See, for example, The Japan Economic Journal, 2 March 1971.) For numerous reasons, however, Chrysler chose not to observe even this modified investment schedule-a "tragic error," in the opinion of one leading Chrysler manager who had been intimately involved in the relationship with Mitsubishi-although Chrysler did buy the initial 15% at a cost of roughly $30 million by September 1971. Only in 1985, after Lee Iacocca had joined Chrysler from Ford, would Chrysler increase its equity in MMC to roughly 24%. That share fell to about 21% when MMC went public in December 1988, however, and dropped again-to 12.1%-after the American company sold much of its stock in MMC to current Mitsubishi shareholders in September 1989. Interview with Robert Perkins, Washington, D.C., 1989; The Wall StreetJournal, 25 September 1989; B e New York Times, 23 September 1989. 156. Various internal reports, GM Corporate Records. 157. As cited in Memorandum, R.C. Gerstenberg to Executive Committee, 27 April 1971, GM Corporate Records. 158. Internal memorandum, J. M. Roche to Finance Committee "GM Investment in Isuzu Motors," 27 April 1971, GM Corporate Records. As later developed by MITI, the arrangement stipulated that the 5 key. members of the blocking party, including Dai Ichi and C. Itoh, each "control" a group of other shareholders and take responsibility to ensure that holding within the group remained constant. Interview with Barton Brown, Austin and New Haven, 1991. 159. Duncan, p. 50; Interview with James Roche, Bloomfield Hills, Michigan, 1989; Various internal memoranda, GM Corporate Records. 160. "Tarzan Acquisition Program," 19 March 1970, internal memorandum, FMC Archives, Doc. No. AR-71-09452:6. 161. The Wall Street Journal, 21 May 1979.

Notes to Pages 239-245 162. Interview with Robert R. Reilly, General Manager, Climate Control Division, FMC, and former Ford negotiator with Tay6 Kagya in the second-round talks, Dearborn, 1989. 163. Interview with Robert R. Reilly, Dearborn, 1989; "Executive Summary: Proposed Acquisition of Equity in Toyo Kogyo," 12 July 1979, FMC Archives, DOC.NO. AR-84-56536. 164. Interview with Robert R. Reilly, Dearborn, 1989. 165. Letter, Henry Ford 11, Chairman of the Board, FMC, to Ichiro Isoda, President, Sumitomo Bank, 12 June 1979, FMC Archives, Doc. No. AR-8456536. 166. Ford also paid an estimated $55 million in cash. The acquisition, which cost roughly $130 million in total, was achieved by combining this $55 million with proceeds from the sale of the Yokohama properties, to which Ford Industries, successor to the prewar Japanese company, held title. Internal memorandum, 10 July 1979, FMC Archives, Doc. No. AR-84-56536; The Wall Street Journal, 11 July 1989. 167. The 26 January 1980 date represents the time of the formal merger in Japan of Toyo K b g y ~and Ford Industries. The merger agreement was signed on 31 July 1979 in Tokyo. Internal memorandum, FMC Archives, Doc. No. AR-84 56536. 168. Interview with Dr. Albert Seig, President, Kodak Japan, Tokyo, 1986. 169. U.S. Department of Commerce, Selected Data on US.Direct Investment Abroad, 1950-76, p. 2; U.S. Department of Commerce, Sumey of Current Business, August 1981.

Conclusions 1. As previously mentioned, the Chinese (principally in Nagasaki) and the Dutch (on the island of Dejima) were permitted to maintain extremely modest direct investments in Japan from the mid-17th through the mid-19th centuries. In addition, a limited amount of foreign direct investment did manage to enter and temporarily operate in the domestic Japanese market during the economic and political turmoil surrounding the Meiji Restoration. 2. Although much of the literature on modern Japanese economic growth ignores or downplays the role of foreign direct investment, such investment in fact contributed significantly to that nation's economic and industrial development. In his important study of the development of the Japanese automobile industry, for example, Michael Cusumano does not identify many of the vital contributions of the local Ford and General Motors subsidiaries to the prewar growth of Nissan and Toyota. See Michael Cusumano, The Development of the Japanese Automobile Industry: Technology and Management at Nissan and Tqota, Chapter 1. More recent scholarship, however, has begun to give FDI its proper

Notes to Pages 248-249 due. See, for example, the contributions of Udagawa Masaru and Mira Wilkins in Yuzawa Takeshi and Udagawa Masaru, Foreign Business in Japan Before World War Two, pp. 1-30, 35-57. 3. Johnson, Chapter 1. 4. Ibid., pp. 20-24. 5. Ibid., pp. 19, 24ff. 6. T. J. Pempel, Policy and Politics in Japan, Chapter 2; Ezra Vogel "Guided Free Enterprise in Japan," Harvard Business Review, May-June 1978, pp. 161-170. 7. John Zysman, Governments, Markets and Growth, pp. 233,240ff. Emphasis added. 8. Peter Katzenstein, Small States in World Markets, pp. 20-23; Stephen Krasner, Defending the National Interest, p. 58. 9. George Lodge, Comparative Business-GovernmentRelations, p. 17. 10. France is often cited as the other major example of a statist regime among such economies. 11. Richard Samuels, f i e Business of the Japanese State, p. 262. Emphasis added. Samuels's specific statement in the text refers to his study of the Japanese energy industries. 12. Samuels, p. 260. 13. Daniel I. Okimoto, Between MITI and the Market, pp. 236-237. 14. John 0. Haley "Governance by Negotiation: A Reappraisal of Bureaucratic Power in Japan," in Kenneth B. Pyle, f i e Trade Crisis: How Will Japan Respond?, p. 184. Rosenbluth comes to much the same conclusion in her study of Japanese financial deregulation. See Frances M. Rosenbluth, Financial Politics in ContemporaryJapan, p. 8.

Bibliography Archives and Other Record Collections Aikawa Family. Aikawa Papers. American Telephone and Telegraph. Corporate Archives. Chrysler. Corporate Records. Coca-Cola. Corporate Archives. Dupont Japan. Corporate Records. Ford. Corporate Archives. Ford Japan. Corporate Records. General Motors. Corporate Records. General Motors Japan. Corporate Records. Great Britain, Public Record Office. Foreign Office, Consular Reports and Correspondence. IBM Japan. Corporate Records. Japan, Gaimushb (Ministry of Foreign Affairs). Archives. Honpd kakkoku kan gaben kaisha hnkei zakken (Miscellaneous documents relating to joint concerns between Japan and various countries), Vol. I: General, April 1929December 1943; 11: Japan and the United States, February 1930-July 1937. -, Kokuritsu kbbunshokan (National Archives). Various pamphlets. -, Okurasha (Ministry of Finance). Archives. Noda Uichi Papers. - -,Archives. Shuzeikyoku (Bureau of Taxation) Gaikoku shihon (zenbu mata wa ichi bu) ni yoru seiza gaisha shirabe (Research report on manufacturing companies [wholly or partially] dependent on foreign capital). Tokyo: June, 1932. -, Tsnshb sangyb sha (Ministry of International Trade and Industry). Archives. Kogane yoshiteru shi kizdshirya (Materials donated by Kogane Yoshiteru). MacArthur Memorial. Archives. Mitsui Bunko (Mitsui Corporate Archives). "Shitenchb kaigi gijiroku" (Minutes of the branch managers' meetings), 1917, 1919, 1921, 1926, 1931; "Dai 10 kai jigyb hbkokusho" (10th Report on Business Activities), 1924.

Bibliography Motorola. Corporate Records. Nihon Hasa Kyokai (NHK). Archives. Otis Elevator. Corporate Records. Otis Elevator Japan. Corporate Records. Texas Instruments. Corporate Archives. United States, Department of State. Internal Records, 1950-1980. (Declassified for the author through petititions based on the Freedom of Information Act.) -,National Archives. Record Groups: RG 40: Records of the Department of Commerce. RG 59: General Records of the Department of State. RG 84: Records of the Foreign Service Posts of the Department of State. RG 151: Records of the Bureau of Foreign and Domestic Commerce, Department of Commerce. RG 243: Records of the United States Strategic Bombing Survey. RG 273: Records of the National Security Council. RG 285: Records of the Office of International Trade, Department of Commerce. RG 331: Records of the Supreme Commander for the Allied Powers. RG 353: Records of the State-War-Navy Coordinating Committee. United Technologies. Corporate Records. University of Tokyo, Faculty of Economics. Ishikawa I c h i r ~Papers. Victor Company of Japan. Corporate Archives. Westinghouse Electric (Japan). Corporate Records.

Periodical Literature Asahi shinbun Automobile Epics Barront Bell Telephone Quarterly Business Week Chemical G Engineering News Chemical Age Chemical Marketing Reporter Ch~sageppa Chna koron Circuit News Coca-Cola Overseas Computer Systems News ContemporaryJapan Daiamondo

Bibliography

The Dallas Morning News Detroit Free Press Economic Statistics Monthly Ekonomisuto Electrical Communication Electronic Engineering News Electronic News Electronics Ereb~takai The Far East Forbes The Ford Times Foreign Exchange Control Board Bulletin Fortune Gaikoku kawase IEEE Spectrum IBM Asia Pacfic IBM Japan News The Japan Advertiser The Japan Chronicle The Japan Economic Journal The Japan Times The Japan Weekly Chronicle The Japan Weekly Mail Jitsugyd no Nihon Journal of the American Chamber of Commerce in Japan Journal of Commerce and Industry Journal of Finance and Commerce Keidanren Review Keiei shirin Keizai t e n b ~ Kokusai denshin denwa Konpasu Maiaichi shinbun Nation's Business The New York Review of Books The New York Times Nihon keizai shinbun N i k b n k~gydshinbun Nikkei bijinesu Nikkei sangyo shinbun Nippon Times

The Northwestern Bell The O&al Gazette (Japan) The Oriental Economist Osaka Asahi shinbun Otis Bulletin San Francisco Call Survey of Current Business Time Taya keizai The Wall Street Journal Western Electric News Zaisei keizai kaha Zaisei kin-yu takei geppa

Other Sources Abegglen, James and George Stalk, Jr. Kaisha: The Japanese Coyoration. New York: Basic Books, 1985. Abo Tetsuo. "American Automobile Enterprises Abroad During the Interwar Period," Annals of the Institute of Social Science, University of Tokyo, No. 22 (1981). Allen, George C. Japan's Economic Expansion. London: Oxford University Press, 1965. -. "Britain's Perceptions of Japan's Post-War Economic Prospects." In Gordon Daniels et al., eds., Histo y and International Relations in Proceedings of the British Association for Japanese Studies. Sheffield: Centre of Japanese Studies, University of Sheffield, 1977. Part One, Vol. 11. -.Japan's Economic Recovery. Westport: Greenwood Press, 1986. al. Western Entelprise i n Far Eastern Economic Development: China and -et Japan. New York: Macmillan, 1954. Allinson, Gary. Japanese Urbanism: Industry and Politics i n Kariya. Berkeley: University of California Press, 1975. Amagai Shsgo. Nihon jidasha kagya no shiteki tenkai (The historical development of the Japanese automobile industry). Tokyo: Akishobs, 1982. American Chamber of Commerce in Japan. US. Manufacturing Investment i n Japan. Tokyo: ACCJ, 1978. -,Council of the European Business Community and Booz, Allen and Hamilton, Inc. Direct Foreign Investment i n Japan: The Challengefor Foreign Firms. Tokyo: ACCJ and EBC, 1987. Ames, Walter L. and David N. Roberts. "Foreign Acquisitions in Japan: Hurdling the Ultimate Barrier," Journal of the American Chamber of Commerce i n Japan, January 1986.

Bibliography Anchordoguy, Marie. Computers Inc: Japan's Challenge to IBM. Cambridge: Harvard Council on East Asian Studies, 1989. Anderson, Irvine H. The Standard-Vacuum Oil Company and United States East Asian Policy, 1933-1941. Princeton: Princeton University Press, 1975. Arai Shinji, ed. Gaishi to kawase-nihon no keizai wa do naru ka (Foreign capital and foreign exchange-What will become of the Japanese economy?). Tokyo: Jiji Tsashinsha, 1948. Arnold, Dean. American Economic Enterprises i n Korea, 1895-1939. New York: Arno Press, 1976. Auerbach, Arnold. Capital Etranger et Developpement Economique au Japon (1868-1938). PhD dissertation, Faculty of Law, University of Paris, 1958. Backman, Jules. The Economics of the Chemical Industry. Washington, D.C.: Manufacturing Chemists Association, 1970. Barnhart, Michael A. "Autarky and International Law: Japan's Attempt to Achieve Self-sufficiency and the Origins of the Pacific War." PhD. dissertation, Harvard Unversity, 1980. Beika Minoru. Nihon keiei k i k i k shi (A history of the mechanization of Japanese management). Tokyo: Nihon Keiei Shuppankai, 1975. Benhett, John W. and Solomon B. Levine. "Industrialization and Social Deprivation: Welfare, Environment, and the Postindustrial Society in Japan." In Hugh Patrick, ed., Japanese Industrialization and Its Social Consequences. Berkeley: University of California Press, 1976. Bisson, Thomas. Japan's War Economy. New York: Institute of Pacific Relations, 1945. Bousquet, Georges. Le Japon de nos Jours et les Sechelles de HExtreme Orient. Paris: Hachette, 1877. Calder, Kent E. "Japanese Foreign Economic Policy Formation: Explaining the Reactive State," World Politics 40:517-541 Duly 1988). Caves, Richard. Multinational Enterprise and Economic Analysis. New York: Cambridge University Press, 1982. Chandler, Alfred. Scale and Scope: The Dynamics of industrial Capitalism. Cambridge: Harvard University Press, 1990. Checkland, Olive and Sydney. "British and Japanese Economic Interaction under the Early Meiji: The Takashima Coal Mine, 1868-88," Business History 26.2:139-155 (1984). Cho Yukio. "An Inquiry Into the Problem of Importing American Capital Into Manchuria: A Note on Japanese-American Relations, 1931-1941." In Dorothy Borg et al., eds., Pearl Harbor as History: Japanese-American Relations, 1931-1941. New York: Columbia University Press, 1973. Clement, Ernest W. A Handbook of Modern Japan. Chicago: A. C. McClung & Co., 1913.

Bibliography Coca-Cola Company. "Chronological History of the Coca-Cola Company, 1886-1967." Atlanta: The Coca-Cola Company, n.d. -. The Chronicle of Coca-Cola. Atlanta: The Coca-Cola Company, n.d. -. Annual Report. Various years. Coca-Cola (Japan) Company. Coca-Cola: The First Thirty Ears. Tokyo: CocaCola (Japan) Company, 1987. Cohen, Jerome B. Japan's Economy i n War and Reconstruction. Minneapolis: University of Minnesota Press for Institute of Pacific Relations, 1949. -.Japan3 Postwar Economy. Bloomington: Indiana University Press, 1958. Cohen, Theodore. Remaking Japan: The American Occupation as New Deal. New York: Free Press, 1987. Craig, Albert. "Fukuzawa Yukichi: The Philosophical Foundations of Meiji Nationalism." In Robert Ward, ed., Political Development i n Modern Japan. Princeton: Princeton University Press, 1968. Cusumano, Michael. The Japanese Automobile Industry: Technology and Management at Nissan and Toyota. Cambridge: Harvard Council on East Asian Studies, 1985. Daiamondosha, ed. Sanzen ky~hyakuwano nogamotachi (Three thousand nine hundred wild ducks). Tokyo: Daiamondosha, 1967. -.Sekai k i g p monogatari: Koka kora (Tales of world enterprises: CocaCola). Tokyo: Daiamondosha, 1968. de Becker, Jospeh. Japanese Law of Trading Partnerships and Companies. Yokohama: Kelly & Walsh, 1906. -. Annotated Civil Code of Japan. Yokohama: Kelly & Walsh, 1909-1910. -. Commentary on the Commercial Code of Japan. Yokohama: Kelly & Walsh, 1913. -.Pointers on Japanese Partnerships, Companies and Trade Names. Yokohama: Kelly & Walsh, 1917. -. International Private Law of Japan. London: Butterworth, 1919. -. The Commercial Code of Japan. London: Butterworth & Co., 1927. -. The Code of Civil Procedure of Japan. Yokohama: Kelly & Walsh, 1928. Dennett, Raymond et al., eds. Documents on Amen'can Foreign Relations. Vol. VIII. Princeton: Princeton University Press, 1948. Dodwell Marketing Consultants. Industrial Groupings i n Japan. Tokyo: Dodwell Marketing Consultants. Various years. Domei Tsushin Sha, Overseas Department, tr. & comp. Wartime Legislation i n Japan: A Selection of Important Laws Enacted or Revised i n 1941. Tokyo, 1941. Dore, Ronald. Flexible Rigidities: Industrial Policy and Structural Adjustment i n the Japanese Economy 1970-80. Stanford: Stanford University Press, 1986. Dow Chemical Company. Annual Report. Various years. Duncan, William C. U.S.-JapanAutomobile Diplomacy: A Study i n Economic Confrontation. Cambridge: Ballinger, 1973.

Bibliography Dunning, John H. "Changes in the Level and Structure of International Production: The Last One Hundred Years." In Mark Casson, ed., The Growth oflnternational Business. London: Allen & Unwin, 1983. Durden, Robert F. "Tar Heel Tobacconist in Tokyo, 1899-1904," The North Carolina Historical Review 53.4:347-363 (October 1976). EHS Law Bulletin Service. Tokyo: Eibttn hareisha. Various issues. Ekonomisuto, ed. Shagen: K ~ d oseichaki no Nihon (Testimony: Japan in the era of high-speed growth). Vol. 1. Tokyo: Ekonomisuto. Encarnation, Dennis. "Cross-Investment: A Second Front of Economic Rivalry." In Thomas McCraw, ed., Amen'ca versus Japan. Boston: Harvard Business School Press, 1986. -.Rivals beyond Trade: America versus Japan in Global Competition. Ithaca: Cornell University Press, 1992. -and Mark Mason. "Neither MITI Nor America: The Political Economy of Capital Liberalization in Japan," International Organization 44.1:25-54 (Winter 1990). Engelbourg, Saul. "International Business Machines: A Business History." PhD dissertation, Columbia University, 1954. Fearey, Robert. The Occupation of Japan: Second Phase: 1948-50. New York: MacMillan Company, 1950. Federation of British Industries. Report of Mission to the Far East, AugustNovember 1934. London: Bradbury, Wilkinson, 1934. Fbdo Jidbsha (Nihon) (Ford Motor Uapan]). Fado (Ford). Tokyo: Ford Japan, n.d. Ford Motor Company. Annual Report. Various years. Fox, Grace. Britain and Japan, 1858-1883. Oxford: Oxford University Press, 1969. Fujiwara Ichirb. Shihon jiyaka to takokuseki kigp (Capital liberalization and multinational enterprise). Tokyo: Nihon Keizai Shinbunsha, 1972. Fujiwara Sadao. 'Wagakuni denki sangyo ni taisuru chokusetsu tbshi: dai ichiji taisen Zen no baa? ([Foreign] direct investment in the Japanese electrical industry: The pre-World War I case), Keizai ronshti 110.1,2 (July, August 1972) and 111.3 (March 1973). Fukuda Sumio, tr. & ed. 7%eNew Commercial Code of Japan: Amended in 1932, 1933 & 1938. Tokyo, 1941. Gaston, J. F. Obstacles to Direct Foreign Investment. New York: National Industrial Conference Board, 1951. General Motors. Annual Report. Various years. -. "Missionaries in the Overseas Markets of Tomorrow." New York: General Motors, 1 March 1928. - 'Tlants and Products of General Motors." New York: General Motors, 31 December 1929.

Bibliography

-,

Overseas Operations. f i e War Effort of the Overseas Division. New York: General Motors, 1944. Goldfarb, Laurence. "Pacific Overture: Western Electric in Japan, 1895-1925." Senior Honors Thesis, Harvard College, 1988. Great Britain, Department of Overseas Trade. Report of the British Economic Mission to the Far East, 1930-1931. London: 1931. Grew, Joseph. Ten Ears i n Japan: A Contemporary Record Drawn fiom the Diaries and Private and Ojicial Papers of Joseph C. Grew. New York: Simon and Schuster, 1944. Griffin, Eldon. Clippers and Consuls: Amwican Consular and Commercial Relations with Eastern Asia, 1845-1860. Ann Arbor: Edwards Brothers, 1938. Gull, Edward M. British Economic Interests i n the Far East. London: Oxford University Press, 1943. Hadley, Eleanor. Antitrust i n Japan. Princeton; Princeton University Press, 1970. Haley, John 0. "Governance by Negotiation: A Reappraisal of Bureaucratic Power in Japan." In Kenneth B. Pyle, ed., f i e Trade Crisis i n Japan: How Will Japan Respond? Seattle: Society for Japanese Studies, 1987. -. "Toward a Reappraisal of the Occupation Legal Reforms: Administrative Accountability." In Fujikura, ed., Eibei ha ronsha (Festschrift for Hideo Tanaka). 1987. Hattori Y. "The Foreign Commerce of Japan Since the Restoration, 1869-1900." In Studies i n Historical and Political Science: Social and Industrial History, No. 22. Baltimore: Johns Hopkins University Press, 1904. Hayashi Masayuki. "Senzen ni okeru amerika takokuseki kigyb no nihon shinshutsu" (The advance of American multinational enterprise to Japan in the prewar period), K ~ n a nronsha 539-63 (March 1977). Hein, Laura. Fueling Growth: fie Energy Revolution and Economic Policy i n Postwar Japan. Cambridge: Harvard Council on East Asian Studies, 1990. Henderson, Dan Fenno. Foreign E n t e ~ r i s ei n Japan: Ldws and Policies. Tokyo: Tuttle, 1973. Higuchi Hiroshi, ed. Nihon ni o k m gaikoku shihon no chasa (An investigation of foreign capital in Japan). Tokyo: Nihon Sangyb Radb Chasa Kyoku, 1948. Hoffer, Peter C. 'Xmerican Businessmen and the Japan Trade, 1931-1941," fie Pac$c Historical Review, May 1972. Hollerman, Leon. Japan's Dependence on the World Economy: f i e Approach Toward Economic Liberalization. Princeton: Princeton University Press, 1967. -. "International Economic Controls in Occupied Japan," Journal of Asian Studies 38.4:707-719 (August 1979). -. "Interventionism and Foreign Trade Statistics in Occupied Japan." In Leon Hollerman, ed., Japan and the United States: Economic and Political Adversaries. Boulder: Westview Press, 1980.

Bibliography

-.Japan Disincolporated: The Economic Liberalization Process. Stanford: Hoover Institution Press, 1988. Horie Yasuzb. 'Nichibei kin-yii kankei" (U.S.-Japanese financial relations). In Nichibei h n k a kdshashi (2) (A history of cultural negotiations between Japan and the United States). Tokyo: Y~yasha,1954. -. "Meiji zenki no gaishi haijo ni tsuite" (On the elimination of foreign capital in early Meiji), Keizai ronsa 56.1:107-114 (January 1943). -. Gaishi yunyii no h i k o to tenbd (The importation of foreign capital: Retrospect and prospect). Tokyo: Yiihikaku, 1950. -. 'Foreign Capital and the Japanese Capitalism after the World War I [sic]," Kyoto University Economic Review 2:38-59 (1950). Hou, Chi-Ming. Foreign Investment and Economic Development in China, 18401937. Cambridge: Harvard University Press, 1965. Hunsberger, Warren S. The International Financial Position of Japan. New Haven: Yale University Press, 1937. International Business Machines. "IBM Japan: A Chronological Summary, 1925-1974." Pamphlet, n.d. Idei Seishi. Gaishi donyii no kihon chishiki (Basic knowledge of foreign capital induction). Tokyo: Habunsha, 1949. Inuta Akira. "Wagakuni sengo no gaikoku kawase kanri to gaishi kisei" (Japanese postwar foreign exchange and foreign capital regulations), Keizai ronsh~.Various volumes. Ishikawa Riichi. "The Outline of Japanese Elevator Inudstry [sic]." n.d. Unpublished. Ishimaki Yoshio. Gaikoku kawase kanri ha seigi (The foreign-exchange control law). Tokyo: Bunga Do, 1939. Ishizumi Kanji. Acqgiring Japanese Companies. Tokyo: The Japan Times, 1988. Itoh Motoshige and Kiyono Kazuharu "Foreign Trade and Direct Investment." In Komiya Ryiitar~,ed., IndustAal Policy of Japan. Tokyo: Academic Press, 1988. Japan. Commercial Code of Japan Official Translation. Tokyo: Hakubunsha, 1893. -, Dai Nihon Teikoku Gikai Shi Kankakai, ed. Dai nihon teikoku g i h i shi (Records of the Imperial Diet). Tokyo: Dai Nihon Teikoku Gikai Shi Kankakai. Various years. -,Embassy of Japan in the United States. The Position of Foreign Investment Today.Washington, D.C.: n.d. -, Gaimusha (Ministry of Foreign Affairs), Tokubetsu Shiryabu (Special Sources Section), ed. Nihon ni okem gaikoku shihon (Foreign capital in Japan). Tokyo, 1948. -, Hamusha (Ministry of Justice). Harei zensho (Collected laws). Tokyo: Naikaku Insatsu Kyoku. Various years.

Bibliography

-,

Keizai Kikaku Cha (Economic Planning Agency). B~eki,kokusai shilshi hen (Trade, international finance edition). In Sengo keizai shi (Postwar economic history). Tokyo: Ministry of Finance, 1957. -, Kokkai Shiigiin Dai Nanakai (Seventh Session, House of Representatives, National Diet). Keizai Antei Iinkai gijiroku: dai nqil yon go (Records of the meetings of the Committee on Economic Stability: No. 24). Tokyo, 1950. -, Kokkai Toshokan (National Diet Library), ed. Gaishi d ~ n y i lmondai ni kansuru shoroncha (The nature of the various arguments concerning foreign capital induction). Tokyo: 1948. -, Nihon Ginka (Bank of Japan), Gaikoku Kawase Kanrikyoku (Foreign Exchange Control Bureau). Gaishi d ~ n y i lkankei shuya ninka anken ichiran .(An overview summary of important approvals with respect to foreign capital induction). Tokyo, 1961. - -,Statistics Department. Historical Statistics of Japan. Tokyo: 1962. - -,Foreign Capital Research Society, comp. "Statistical Data and List of Principal Cases of Foreign Capital Investment in Japan as of the end of 1952." Tokyo: n.d. - -.Economic Statistics of Japan. Tokyo, annual. - -.Nihon Ginka enkakushi (The historical development of the Bank of Japan). Tokyo: Nihon G i n k ~Enkakushi Hensan Iinkai, 1963. -, -.Honpa jilyd keizai t ~ k e (Important i economic statistics on Japan). Tokyo. -, Nihon Kbgya Ginkb (Industrial Bank of Japan). Gaikoku kaisha no honpa tdshi: Kako ni o k m jirei no kenkyil (Investments in Japan of foreign companies: A study of past cases). Tokyo, 1948. . , -.Nihon Kagya Ginka gojil nenshi (A fifty-year history of the Industrial Bank of Japan). Tokyo: 1957. -, Okurashb (Ministry of Finance). Dai niji taisen n i okeru reng~kokuzaisan shori (The management of World War 11 Allied property). 3 vols. Tokyo: Okurasho, 1966. -, -.Financial and Trade Arrangements Between Occupied Japan and Other Countries. Tokyo: Jitsugyb no Nihon Sha, 1950. - -,Financial History Section. T4e Financial History of Japan: T4e Allied Occupation Period, 1945-1952. Tokyo: Ministry of Finance. -, -Hundred-Ear Statistics of the Japanese Economy. Tokyo, 1966. With supplement. -, -Kanzeibu (Tariff Section, Ministry of Finance), ed. Kanzeiritsu enkaku: Nihon kanzei, zeikanshi s h i q 11 (History of tariff rates: Historical Materials on Japanese tariffs, customs II). Tokyo: Okurashq 1968. -, -Research Division. A Guide to Investment i n Japan, 1951-52. Tokyo: Federation of Economic Organizations, 1952. -, -, Shbwa Zaiseishi Henshiishitsu, ed. Kokusai kin-yil, b ~ e k(Internai

Bibliography tional finance, trade). In S h m a zaisei shi (A history of Showa economic policy). Vol. XIII. Tokyo: T q b Keizai Shinpbsha, 1963. - -, Zaiseishi Shitsu (Center for the History of Economic Policy), ed. Baeki, kokusai kin-yii (Trade and international finance). In Shawa zaisei shi: shiisen kara k m a made (The history of S h ~ w afiscal policy: From the end of the war until the Peace Treaty), Vol. XV. Tokyo: TOYOKeizai Shinposha, 1976. -, Tsashb Sangp Shb (Ministry of International Trade and Industry), Kigyo Kyoku (Enterprise Bureau). Gaishikei kigya-sono jittai to genja (Foreign capital-affiliated enterprises-Their actual condition and current situation). Tokyo: Okurashq 1968. -, -, -. Gaishi donyii: Sono seido to jittai (The induction of foreign capital: The system and current conditions). Tokyo: Tsasha Sangya Ch~sakai,1960. -, -. Gaishikei kigyo no doka (The behavior of foreign corporations). Tokyo: Tsashb Sangyb Ch~sakai.Various years. - -. Gaishi d ~ n y i inenkan (Annual report on foreign investment in Japan). Tokyo: Shakb Kaikan. Various years. - -. Shako seisaku shi (A history of commercial and industrial policy). Vols. VI, XVIII, XIX. Tokyo: Tsasha Sangyb Kenkyasha, 1976. - -,Tsiishbkyoku Busshi Ch~seika,ed. Gaishi d ~ n y i ino tebiki: minkan gaishi o d ~ n y isum i ni wa (A guide to foreign capital induction: To import private foreign capital). Tokyo: Shbkb Kybkai, 1949. Japan Times & Mail. Japan's Wartime Legislation, 1939. Tokyo: n.d. Jidasha Kbgyb Shinkbkai (Japan Automobile Manufacturers Association), ed. Nihon jid~shak ~ g shi p kajutsu kiroku shii (Collected records and oral statements on the history of the Japanese automobile industry). In Jidbsha shirya shirizu (Series of materials on the history of the automobile). 3 vols. Tokyo: Terasawa Ichibei, 1973-1979. -. Sekai no jidasha n e n p p (A timetable of the world's automobiles). Tokyo, n.d. Johnson, Chalmers. MZTI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford: Stanford University Press, 1982. Jones, Francis. Extraterritoriality i n Japan and the Diplomatic Relations Resulting In Its Abolition, 1853-1899. New Haven: Yale University Press, 1931. Jones, Geoffrey. "The Growth and Performance of British Multinational Firms Before 1939: The Case of Dunlop," The Economic History Review, Second Series 37.1:35-53 (February 1984). -."The Gramophone Company: An Anglo-American Multinational, 1898-1931," Business History Review 59.1:76-100 (Spring 1985). Jones, Hazel. Live Machines: Hired Foreigners and Meiji Japan. Vancouver: University of British Columbia Press, 1980.

Bibliography Kamada Isao. Nihon no keizai ryoku to kydsd ryoku: Shihon jiytika jidai ni t a w (Japanese economic and competitive strength: Arriving at the era of capital liberalization). Tokyo: Kadansha, 1967. Kamiya Shotaro. My L$e With Tgrota. Nagoya: Toyota Motor Sales, 1976. Kanno Masao. Shihon jiytika to kokusai kydsd ryoku (Capital liberalization and international competitive strength). Tokyo: Shiseido, 1966. Kaplan, Eugene J. Japan: The Business-Government Relationship. Washington, D.C., February, 1972. Katb Hiroshi and Noda Kazuo et al. Shirizu nihon no k i g p 9: Fujitsu (Series on Japanese Industry). Tokyo: Soyasha, 1980. Katzenstein, Peter J. Small States i n World Markets: Industrial Policy i n Europe. Ithaca: Cornell University Press, 1985. Kawamura Akira. "History of Japanese Foreign Exchange and Foreign Investment Control." In Kawamura Akira, ed., Law and Business i n Japan. Tokyo: The Japan-Australia Business Co-operation Committee, 1982. Kester, W. Carl. Japanese Ekeovers: The Global Contestfor Colporate Control. Boston: Harvard Business School Press, 1991. Keizai D~yiikai(Japan Committee for Economic Development). Keizai d ~ ~ k a i gonen shi (A five-year history of the Japan Committee for Economic Development). Tokyo: Keizai Dayiikai, 1951. Kidron, Michael. Foreign Investment i n India. New York: Oxford University Press, 1965. Komiya Ryiitaro. "Shihon jipka no keizaigaku" (The economics of capital liberalization), Ekonomisuto, 25 July 1967, pp. 14-29. -. 'Direct Foreign Investment in Postwar Japan." In Peter Drysdale, ed., Direct Foreign Investment i n Asia and the Pacifc. Canberra: Aust,ralian National University Press, 1972. Reprinted in Tokyo Centerfor Economic Research Reprint Series, No. 107. Tokyo: Tokyo Center for Economic Research, 1973. -and Itoh Motoshige. Japanese Foreign Economic Policy. In Inoguchi Takashi and Daniel Okimoto, The Political Economy of Japan. Volume 2. Stanford: Stanford University Press, 1987. Kosaka Masataka. "The International Economic Policy of Japan." In Robert Scalapino, ed., The Foreign Policy ofModern Japan. Berkeley: University of California Press, 1977. Kbzuki Tamotsu. 'Wagakuni ni okeru gaikoku kaisha enmacha" (Secret report card on foreign capita1,companies in Japan), Bungei shunjcz, February 1932, pp. 76ff. Krasner, Stephen D. Defending the National Interest: Raw Materials Investments and US. Foreign Policy. Princeton: Princeton University Press, 1978. Krause, Lawrence B. "Evolution of Foreign Direct Investment: The United States and Japan." In Jerome B. Cohen, ed., Pacijic Partnership: United Statesjapan Trade. Lexington, M A : Lexington Books, 1972.

Bibliography Kressler, Peter R. "An Evaluation of United States-Japanese Negotiations of Major Commercial Disputes during the 1930's." PhD dissertation, University of Pennsylvania, 1968. Kuwahara Tetsuya et al. "Dai nijani kai taikai tbitsu rondai: 'Kindai keiei no tenkai to kokusai kankei' t ~ g hakoku" i (The overall theme of the 22nd general meeting: "The development of modern management and international relations"-a report on the discussions), Keiei shigaku 22.1:71-81 (April 1987). Lanz, Kurt. Around the World with Chemistry. New York: McGraw Hill, 1980. League of Nations, Association of Japan, The Codes Translation Committee, ed. The Commercial Code of Japan: Annotated. Tokyo: Codes Translation Committee, 1932. Lewis, Cleona. America's Stake i n International Investments. Washington, D.C.: The Brookings Institution, 1938. Lipsey, Seymour. "Changing Patterns of International Investment in and by the United States." In Martin Feldstein, ed., The United States i n the World Economy. Chicago: University of Chicago Press, 1988. Lockwood, William W. The Economic Development of Japan: Growth and Structural Change, 1868-1938. Princeton: Princeton University Press, 1954. Lodge, George C. Comparative Business-Government Relations. Englewood Cliffs: Prentice Hall, 1990. Loenholm, Ludwig. Japanese Commercial Law. Tokyo: 1898. -. New Japanese Laws Supplementary to the Codes. Tokyo: Shueisha, 1898. -. The Condition of Foreigners Under the New Zeaties. Tokyo: 1899. Look Japan. Taking on Japan: How 18 Foreign Companies Compete i n the World's Second Largest Market. Singapore: Look Japan Ltd., 1988. Loonen, C. H. Le Japon moderne. Paris: 1894. Malerba, Franco. The Semiconductor Business: The Economics of Rapid Growth and Decline. Madison: University of Wisconsion Press, 1985. Martin, Edward. The Allied Occupation of Japan. Stanford: Stanford University Press, 1948. Masland, John W. "Commercial Influence Upon American Far Eastern Policy, 1937-1941," Pacijk Histon'cal Review 11:281-299 (October 1942). Mason, Mark. "Foreign Direct Investment and Japanese Economic Development, 1899-1931," Business and Economic History, Second Series 16:93-107 (1987). -. "United States Direct Investment in Japan: Studies in Government Policy and Corporate Strategy." PhD dissertation, Harvard University, 1988. Masujima R. "Japanese Law in Relation to the Status of Foreigners." In Proceedings of the New York State Bar Association, 1903. McCormick, Janice. "Nippon Motorola (A)" and "Nippon Motorola (B)." Case Nos. 9-487-029 and 9-487-030. Boston: Harvard Business School, 1986.

Bibliography McMaster, John. "The Takashima Mine: British Capital and Japanese Industrialization," Business History Review 37.3:217-239 (Autumn 1963). Midorikawa Mitsuo. Shihon tahi bashi ha no kaishaku to un-yo (Interpretation and application of the capital-outflow-prevention law). Tokyo: Daida Shoin, 1932. Milbrooke, Anne. "Otis in Europe, 1873-1975." Archive and Historical Resource Center, United Technologies, April 1986. -. "Otis in the Pacific and the Far East." Archive and Historical Resource Center, United Technologies, August 1983. Mitsubishi Economic Research Institute, Editorial Board. Mitsui-MitsubishiSumitomo: Present Status of the Former Zaibatsu Enteyrises. Tokyo: Mitsubishi Research Institute, 1955. -. Nihon ni okeru keizai nashonarizumu (Economic nationalism in Japan). Tokyo: Nihon IBM, 1977. Miyaoka Tsunejiro. "The Japanese Law of Nationality and the Rights of Foreigners in Land Under the Laws of Japan." In Carnegie Endowment for International Peace, ed., International Conciliation: Documents of the Year 1925. Miyazaki Yoshikazu, ed. "Gaishi" (Foreign capital). In Gendai nihon no dokusen shihon (Contemporary Japanese monopoly capitalism). Vol. VII, Part 2. Tokyo: Shiseidq 1965. Mizunuma Tomoichi. "Meiji zenki takashima tanka ni okeru gaishi to sono haijo katei no tokushitsu" (The elimination of foreign capital from the Takashima Coal Mine in early Meiji), Rekishigaku Kenkyg 273:28-37 (February 1963). Morimoto Toshikatsu. Onban kayashi (A history of popular recordings). Tokyo: 1977. Morita Akio. Made in Japan. New York: E. P. Dutton, 1986. Moulton, Harold G. et al. Japan: An Economic and Financial Appraisal. Washington, D.C.: The Brookings Institution, 1931. Nakashima Shaza. Kabushiki no mochiai to k i g p ha (Mutual shareholding and business law). Tokyo: Shbji Hbmu Kenkyiikai, 1990. National Foreign Trade Council. Report of the American Economic Mission to the Far East: American Trade Prospects in the Orient. New York: National Foreign Trade Council, 1935. Nihon Bikut2 (Japan Victor). Nihon Bukutii gojfinen shi (A fifty-year history of Japan Victor). Tokyo: Nihon Bikuta, 1977. Nihon Danroppu Gomu (Dunlop Rubber Japan). Danroppu saritsu g o j ~shunen (Dunlop Rubber at fifty). Kobe: Nihon Danroppu Gomu, 1959. Nihon Denki (NEC). Nihon denki kabushiki kaisha nanaj~nenshi (A seventyyear history of NEC). Tokyo: NEC, 1972. Nihon Denshi Kikai Kbgyakai (The Electronics Industry Association of Japan).

Bibliography

Denshi k a g p sanjilnenshi (A thirty-year history of the electronics industry). Tokyo: Daiamondosha, 1979. Nihon HOSOKy~kai(NHK). 'Dokyumento Showa" Shuzaihan (NHK "Showa Document" Committee). Dokyumento shma 3: Amerikasha j ~ r i k uoo soshi seyo (Showa Document 3: Stop the landing of the American cars!). Tokyo: Kadokawa Shoten, 1986. Nihon IBM (IBM Japan). Chikyii wa marui (The earth is round). Tokyo: IBM Japan, 1980. -. Nihon IBM gojiinen shi (A fifty-year history of IBM Japan). Tokyo: IBM Japan, 1988. -. Shashi s w a (Episodes in the company's history). Tokyo: IBM Japan, 1971. Nihon Jidasha Yunyii Kumiai. Gaisha no ayumi (The history of foreign automobiles). Tokyo: Nihon Jidasha Yunyii Kumiai, 1976. Nihon Keizai Shinbun, ed. Shihon jiyilka to nihon keizai (Capital liberalization and the Japanese economy). Tokyo: Nihon Keizai Shinbunsha, 1967. Nihon Keizai Shinbun, Kogyobii. Kokusanka wa doko e yuku ka: Gaishi j ~ r i k uto saihensei (Where is domestic manufacturing headed? The landing of foreign capital and reorganization). Tokyo: Nihon Keizai Shinbunsha, 1969. Nihon Koromubiya (Japan Columbia). Nihon Koromubiya gojilnen sha shi (A summary of the fifty-year history of Japan Columbia). Tokyo: n.d. Nihon Ochisu Erebaa (Japan Otis Elevator). Nihon &isu Ereb~tagojiinen no ayumi (The fifty-year development of Japan Otis Elevator). Tokyo: Nihon Ochisu Erebeta, 1982. Nippon Electric Corporation. 76e First 80 Ears. Tokyo: NEC, 1984. Nissan. Nissan Konzerun dokuhon (A reader on the Nissan Group). Tokyo. Noda Uichi. Kaisei gaikoku kawase kanri h ~ r e ikaisetsu (Explanation of the Revised Foreign-Exchange Control Law). Tokyo: 1941. l seisan t0s0 (Foreign capital induction and the indusOchiai Eiichi. Gaishi d ~ n y i to trial war). Tokyo: Maki Shobo, 1949. Odate Gyoju. Japan's Financial Relations with the United States. New York: AMS Press, 1922. Ohara Keishi, ed. Japanese Trade & Industry i n the Meiji-Taisho Era. In A History of Japanese-American Culture Relations (1853-1926) Vol. 1. Tokyo: Obunsha, 1957. Ohkawa Kazushi et al. Estimates of Long-Tern Economic Statistics of Japan Since 1868. Tokyo: T o - Keizai Shinposha, 1972. -and Henry Rosovsky. Japanese Economic Growth: Trend Acceleration i n the Twentieth Century. Stanford: Stanford University Press, 1973. Oketa Atsushi, ed. Gaishi kigya i n japan (Foreign capital enterprises in Japan). Tokyo: Dobunkan, 1988.

Bibliography Okimoto, Daniel I. Between MITI and the Market: Japanese Industrial Policyfor High Technology. Stanford: Stanford University Press, 1989. Okita Saburo et al. "Treatment of Foreign Capital-A Case Study for Japan." In John Adler, ed., Capital Movements and Economic Development: Proceedings of a Conference Held by the International Economic Association. New York: St. Martin's Press, 1970. Okuma Shigenobu. Fifty Ears of New Japan. Vol. 1. London: Smith, Elder, 1909. Okumura Hiroshi. Gaikoku shihon: Nihon ni okeru k ~ tod ronri ~ (Foreign capital: Its behavior and logic in Japan). Tokyo: Toyo Keizai Shinpasha, 1969. Okumura Masaji. Jidasha (Automobiles). Tokyo: Iwanami Shoten, 1954. Organization for Economic Cooperation and Development, Committee for Invisible Transactions. Liberalisation of International Capital Movements: Japan. Paris: OECD, 1968. -. Gaps i n Technology: Electronic Components. Paris: OECD, 1968. -. The Semicondttctor Industry: Trade Related Issues. Paris: OECD, 1985. Otis Elevator. Annual Report. Various years. Ozaki Masahisa. Kokusan jid~shashi (A history of domestic automobiles). Tokyo: Jikensha, 1966. -. Jidasha nihon shi (A history of the automobile in Japan). Tokyo: Jikensha, 1955. Ozaki, Robert S. The Control of Imports and Foreign Capital i n Japan. New York: Praeger, 1972. Ozawa Terutomo. "Japanese Policy Toward Foreign Multinationals: Implications for Trade and Competitiveness." In Thomas Pugel, ed., Fragile Interdependence. Lexington, MA.: D.C. Heath, 1986.

Patrick, Hugh, and Henry Rosovsky, eds. Asia's New Giant: How the Japanese Economy Works. Washington, D.C.: The Brookings Institution, 1976. Pearl, Allan. "Liberalization of Capital in Japan," Harvard International Law Journal 13.159-87 (Winter 1972), Part I; 13.2:245-270 (Spring 1972), Part 11. Pempel, T. J. Policy and Politics i n Japan: Creative Conservatism. Philadelphia: Temple University Press, 1982. Petrakis, Harry M. The Founder's Touch: l%e Life of Paul Galvin of Motorola. New York: McGraw Hill, 1965. Pound, Arthur. 72e Turning Wheel: f i e Story of General Motors Through TwentyFive Ears. Garden City: Doubleday, Doran, 1934. Presseisen, Ernest. Germany and Japan: A Study i n Totalitarian Diplomacy, 1933-1941. The Hague: Martinus Nijhoff, 1958. Prestowitz, Clyde. Trading Places: How We Allowed Japan to Take the Lead. New York: Basic Books, 1988.

Bibliography Rabinowitz, Richard, ed. The Law of Foreign Investment i n Postwar Japan: Materials for a Course i n Comparative Law, Cambridge: Harvard Law School, 1988). Various volumes. Redford, Lawrence, ed. The Occupation of Japan: Economic Policy and Reform. Norfolk: The MacArthur Memorial, 1980. Reischauer, Edwin 0. et al. Japan: Tradition and Transformation. Tokyo: Tuttle, 1981. Reischauer, Robert. "Alien Land Tenure in Japan." PhD dissertation, Harvard University, 1935. Remer, C. F. Foreign Investments i n China. New York: Macmillan, 1933. Reubens, Edwin. 'Foreign Capital in Economic Development: The Japanese Experience, 1868-1913." PhD dissertation, Columbia University, 1952. -. 'Foreign Capital and Domestic Development in Japan." In Simon Kuznets et al., eds., Economic Growth: Brazil, India, Japan. Durham: Duke University Press, 1955. Rhodes, Frederick L. John /. Carty: A n Appreciation. New York: privately printed, 1932. Riess, Ludwig. "History of the English Factory at Hirado (1613-1622). In Transactions of the Asiatic Society of Japan, 1898. XVI. 11-15ff. Rollings, Andrew E. "The State, Capital, and the Structure of the World System: American Foreign Policy Towards Japan in the Interwar Period." PhD dissertation, New York University, 1981. Rosenbluth, Frances M. Financial Politics i n ContemporaryJapan. Ithaca: Cornell University Press, 1989. Rosovsky, Henry. Capital Formation i n Japan, 1868-1940. Glencoe: Free Press, 1961. Sakamoto Yoshiharu. "Foreign Investment in Japan." MA Thesis, Columbia University, 1916. Sakatani Yoshira. "Introduction of Foreign Capital," The Far East 2.8:399-403 (20 August 1897). Samuels, Richard. The Business of the Japanese State: Energy Markets i n Comparative and Historical Perspective. Ithaca: Cornell University Press, 1987. Saxonhouse, Gary. "The World Economy and Japanese Foreign Economic Policy." In Robert Scalapino, ed., The Foreign Policy of Modern Japan. Berkeley: University of California Press, 1977. Schumpeter, Elizabeth B., ed. The Industrialization of Japan and Manchukuo, 1930-1940: Population, Raw Materials and Industry. New York: Macmillan Company, 1940. Sebald, William. A Selection of Japan's Emergency Legislation. Kobe: The Japan Chronicle Press, 1937. Seiji Keizai Kenkyiijo, ed. Nihon ni okeru gaikoku shihon (Foreign capital in Japan). Tokyo: Toyo Keizai Shinp~sha,1955.

Bibliography Semiconductor Industry Association. "The Impact of Japanese Market Barriers in Microelectronics." San Jose: SIA, 1985. Setsuritsu Goja Shiinen Kinen Shashi Henshashitsu, ed. Zikoku Sanso no ayumi (The history of Imperial Oxygen). Tokyo: Daiamondosha, 1981. ~ current state and future Shimoja Shin-ichira. Shihon jiyaka no g e n j ~to t e n b (The development of capital liberalization). Tokyo: Kinyu Zaisei Jihb Kenkyakai, 1967. Shawa Denka. "How to Succeed in Business in Japan." Shawa Denkq 1987. Sloan, Alfred P. My Years With General Motors. New York; Anchor/Doubleday, 1963. Smith, Allan. "The Japanese Foreign Exchange and Foreign Trade Control Law and Administrative Guidance: The Labyrinth and the Castle," Law G Policy in International Business 16:417-476 (1984). Sobel, Robert. IBM: Colossus i n Transition. New York: Times Books, 1981. -.RCA. New York: Stein and Day, 1986. Sugiyama Shinya. "Thomas B. Glover: A British Merchant in Japan, 1861-70," Business History 26.2:115-138 (July 1984). Studley, Schupert & Co. "The Dow Chemical Company." Unpublished report, n.d. Supreme Commander for the Allied Powers. History of the Non-Military Activities of the Allied Occupation, 1945-1951. Vol. XVII: The Treatment of Foreign Nationals; Vol. XXI: Foreign Property Administration; Vol. XXXIX: Money and Banking; Vol. XL: Financial Reorganization of Corporate Entqrise; Vol. L: Foreign Trade. Unpublished reports. Takaishi Suekichi. Zkisan, gaikasai shimatsu (The management of enemy property and foreign currency bonds). 2 vols. Tokyo: Zaimu Shuppan, 1974. Takase Satara, ed. Gaishi danyii to kaisha keiei (Foreign capital induction and company management). Tokyo: Moriyama Shoten, 1954. Tam, Kwok-chi. "A Study of Japan's Resistance to Direct Investment from Abroad." PhD dissertation, Georgia State University, 1972. Tedlow, Richard. New and Improved: The Story of Mass Marketing in America. New York: Basic Books, 1990. Tilton, John E. International Diffusion of Technology: The Case of Semiconductors. Washington, D.C.: The Brookings Institution, 1971. Tokyo Institute of Political and Economic Research. "The Control of Industry in Japan." In Bruno Lasker et al., eds., Problems of the Pacijc) 1933: Economic Conflict and Control. Chicago: University of Chicago Press, 1934. Toyota Jidbsha Kagya, ed. Tqota no ayumi (The history of Toyota). Toyota City, 1978. Treat, Payson J. The Early Diplomatic Relations Between the United States and Japan, 1853-1865. Baltimore: Johns Hopkins Press, 1917.

Bibliography

-.Diplomatic Relations Between the United States and Japan, 1895-1905. Stanford: Stanford University Press, 1938. Trebilcock, Clive. B e Vickers Brothers: Armaments and Enterprise, 1854-1914. London, Europa Publications, 1977. Tsunoda Ryusaku et al., comps. Sources of Japanese Tradition. Vol. 11. New York: Columbia University Press, 1958. Tsurumi Yoshihiro. "Coca-Cola Industry (Japan) (A)." Boston, Harvard Business School Case No. 9-373-320. -. "Technology Transfer and Foreign Trade: The Case of Japan, 1950-1966." PhD dissertation, Graduate School of Business Administration, Harvard University, 1968. Uchida Hoshimi. 'Western Big Business and the Adoption of New Technology in Japan: The Electrical Equipment and Chemical Industries 1890-1920." In Okochi Akio et al., eds., Development and Diffusion of Technology: Electrical and Chemical Industries. Tokyo: University of Tokyo Press, 1980. Udagawa Masaru. "The Prewar Japanese Automobile Industry and American Manufacturers." In Japanese Yearbook on Business History: 1985, Vol. II. -. "Jidasha seiza jigyoha no seitei to gaishikei kaisha no tab" (The Automobile Manufacturing Industry Law and its relationship to foreign capitalaffiliated companies). In Tsuchiya et al., eds., Kigyosha no shiteki kenkytl (Historical research on entrepreneurs). Tokyo: Nihon Keizai Shinbunsha, 1981. -. "Senzen nihon no kigyb keiei to gaishikei kigyd' (Prewar Japanese industrial management and foreign capital affiliated enterprises), Keiei shirin 24.1 (April 1987), Part I. -. "Senzenki no nihon jidbsha sangyb: Jidbsha sangyb seisaku to Nissan, Fbdo, G M (The prewar Japanese automobile industry: Automobile industry policy and Nissan, Ford, and GM). In Kanagawaken shi (A history of Kanagawa prefecture), Vol. II. 1983. -. "Historical Development of the Japanese Automobile Industry, 19171971: Business and Government," Keiei shirin 19.431-46 (January 1983). -et al. "Japanese Business and Government in the Inter-War Period: Heavy Industrialization and the Industrial Rationalization Movement." In Nakagawa Keiichiro, ed., Government and Business: Proceedings of the Fifth Fuji Conference. Tokyo: University of Tokyo Press, 1980. -. 'Wissan zaibatsu no jidbsha sangyb shinshutsu ni tsuite" (On the advance of the Nissan zaibatsu into the automobile industry), Keiei shirin 13.4:93-109 (January 1977) and 12.1:73-95 (April 1977). -. "Japan's Automobile Marketing: Its Introduction, Consolidation, Development and Characteristics." In Okochi Akio et al., eds., Development ofMass Marketing: Proceedings of the Sixth Fuji Conference. Tokyo: University of Tokyo Press, 1981.

Bibliography United Nations, Centre on Transnational Corporations. Salient Features and Trends in Foreign Direct Investment. New York: United Nations, 1983. United States. Economic Report of the President. Washington, annual. Various issues. -, Board of Economic Warfare. 'Production of Automotive Vehicles in the Japanese Empire." Unpublished report, from the files of E. Motherwell. 5 July 1943. --,Bureau of Economic Analysis. Selected Data on US. Direct Investment Abroad, 1950-1976. Washington, D.C.: 1982.

- -. US. Direct Investment Abroad: Balance of Payments and Direct Investment Position Estimates, 1977-81. Washington, D.C.: 1986.

--,Bureau of Foreign and Domestic Commerce. Trade Information Bulletins Nos. 38, 46, 147, 365, 505, 612, 673, 680, 731, 767, 825, 836. Washington, D.C. Various years.

- - -. Economic Series, Nos. 1, 20. Washington, D.C. y

- - -.American Direct Investments in Foreign Countries, 1929. - - -. Investment in Japan: Basic Information for United States Businessmen. Washington, D.C.: 1956.

- - -. Special Agents Series, Nos. 172, 209, 217.

-.

Ofice of Business Economics. US. Business Investments in Foreign Countries: A Supplement to the Survey of Current Business. Washington, D.C.: 1960. --. Direct Private Foreign Investments of the United States: Census of 1950. Washington, D.C.: 1953.

- -, Ofice of International Trade. Factors Limiting US. Investment Abroad. Parts 1 and 2, and Summary. Washington, D.C.: 1953-1954.

-,

-,

Department of Commerce and Labor, Bureau of Manufactures. Monthly Consular and Trade Reports. Washington, D.C.: 1899-1909. Department of State. Commercial Relations of the United States. Washington, D.C.: 1899-1903.

-, -. Consular Reports. Various years.

- -.Foreign Relations of the United States. Washington, D.C., Various years.

- -.Papers Relating to the Foreign Relations of the United States. Washington, D.C. Various years.

-, -.Reportsfrom the Consuls of the United States 1889, 1898. Washington, D.C.

- -.Reportsfrom the Consuls of the United States on the Commerce,Manufactures, etc., of their Consular District in Japan. Yokohama: The Japan Gazette, 1881.

- -. Special Consular Reports. Washington, D.C.: 1890-1923. Various volumes.

- -. Treaties and Other International Agreements of the United States of America, 1776-1949. Vol. IX. Washington, D.C., 1972.

Bibliography

- -. United States Treatiesand Other International Agreements. Vol. 111, Part 4 and Vol. IV,Part 2. Washington, D.C.: 1955. Department of the Treasury. Census ofAmerican-Owned Assets in Foreign Countries. Washington, D.C.: 1947. -,International Trade Commission. Competitive Factors Infuencing World Trade in Integrated Circuits. Washington, D.C.: 1979. -,Joint Economic Committee. International Competition in Advanced Industrial Sectors: Trade and Development in the Semiconductor Industry. Washington, D.C.: 1982. -, Office of Alien Property Custodian. Annual Reports, 1942-1945. Washington, D.C.: 1943-1946. Unno Fukuju, Me+ no b ~ e k(Trade i in Meiji). Tokyo: Tsubo S h o b ~ 1967. ,

-,

Vernon, Raymond. Two Hungry Giants: The United States and Japan in the Quest for Oil and Ores. Cambridge: Harvard University Press, 1983. Victor Talking Machine Company. Annual Report. 1927-1929. Vogel, Ezra. "Guided Free Enterprise in Japan," Harvard Business Reveiw, MayJune 1978. Watanabe Makoto. Kawase h n r i hiso (Recollections of exchange control). Tokyo: Gaikoku Kawase Baeki Kenkqkai, 1963. Watters, Pat. Coca-Cola:An Illustrated History. Garden City: Doubleday, 1978. Wells, Louis. "Caustic Soda in Japan (A)" and "Caustic Soda in Japan (B)." Case Nos. 9-378-203 and 9-378-204. Boston: Harvard Business School, 1978. Whitehead, Don. The D m Story: The History of the D m Chemical Company. New York: McGraw-Hill, 1968. Wilkins, Mira. The Emergence of Multinational Enterprise: American Business Abroadfrom the Colonial Era to 1914. Cambridge: Harvard University Press,

-.

1970.

"The Role of U.S. Business." In Dorothy Borg et al., eds., Pearl Harbor as History:JapaneseAmerican Relations 1931-1941. New York: Columbia University Press, 1973. -. The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970. Cambridge: Harvard University Press, 1974. -. "American-Japanese Direct Foreign Investment Relationships, 19301952," Business History Review 56.4:497-518 (Winter 1982). -."The Impacts of American Multinational Enterprise on AmericanChinese Economic Relations, 1786-1949." In Ernest May et al., eds., America's China Trade in Historical Perspective: The Chinese and American Performance. Cambridge: The Committee on American-East Asia Relations of the Department of History, Harvard University, 1986.

Bibliography

-.

"Japanese Multinational Enterprise Before 1914," Business History Review 6.2:199-231 (Summer 1986). -et al. American Business Abroad: Ford on Six Continents. Detroit: Wayne State University Press, 1964. Williams, Harold S. Tales of the Foreign Settlements i n Japan. Tokyo: Tuttle, 1985. Yakushiji Taizo. "The Government in a Policy Dilemma: Dynamic Policy Interventions vis-A-vis Auto Firms, c. 1900-c. 1960." In Masahiko Aoki, ed., The Economic Analysis of the Japanese Firm. Amsterdam: North Holland, 1984. Yamamura, Kozo. "Japan's Deus ex Machina; Western Technology in the 1920's," Journal of Japanese Studies 12.1:65-94 (Winter 1986). Yanagida Rybzb. Jid~shasanjanen shi (A thirty-year history of the automobile). Tokyo: Sansuisha, 1944. Yanase Jiro. Wadachi (Tire tracks). Vols. I, 11. Tokyo: 1981, 1982. Yatsugi Kazuo. R D ~ sD~ g ihiroku (Secret collection on labor strikes). Tokyo: Nihon Kogya Shinbunsha, 1979. Yoffie, David. "Motorola and Japan." Case No. 9-388-056. Boston: Harvard Busf ness School, 1987. Yokoyama Gennosuke. Naichi zakkyo go no nihon (Japan after mixed residence in the interior [becomes legal]). Tokyo: Iwanami Bunko, 1954. Yori Haruo. Gaikoku shihon to nihon no sangya: Shihon no shihai oo kataru (Foreign capital and Japanese industry: Speaking of the control of capital). Tokyo: Gekkan Tosha, 1935. Yoshino, Michael. "Japan as Host to the International Corporation." In Isaiah Frank, ed., The Japanese Economy i n International Perspective. Baltimore: Johns Hopkins University Press, 1975. Yuzawa Takeshi and Udagawa Masaru, eds. Foreign Business i n Japan Before World War II. Tokyo: University of Tokyo Press, 1990. Zysman, John. Governments, Markets and Growth: Financial Systems and the Politics of Industrial Change. Ithaca: Cornell University Press, 1983.

Index Accounting and Tabulating Machine Co., 116 Adam Opel, 74 Aikawa Yoshisuke, 72,80,99,29lnl41; and GM, 75-77, 250; and Ford, 79-80, 91, 92, 250, 295n197; and Army, 81, 292 n173; and MCI, 81 Aircraft industry, 48 Aircarft ManufacturingIndustry Law (1938), 55 AizuTbk6 Corporation, 229-231 Akaboshi Shiro, 292nl73 Alps Electric Company, 332n91, n99; and Motorola, 224 Alps-Motorola SemiconductorLTD. (AMSK), 224-225,333n99 amakudari, 158 Amalgamated Phonograph, 36 Amaya Naohiro, 201 American Trading Company (ATC), 133134 And6 Kaoru, 123, 127 Annaka, 34 Antwerp, Belgium, IBT in, 27, 29 Army Ministry: on GM-Nissan deal, 76; on developing domestic automobile industry, 80-81; use of American factories in wartime, 146 Asahi, 167,171,250; and Coke, 171,317n95 Asahi Chemical Co., 210-212,218 Asahi-Dow Limited, 212 Asai K ~ j i202 , Asano zaibatstr, 79 Associated Oil (later Tidewater), 96 Association of ~ a ~ a n e oxygen se Producers, 52 Australia, U.S. FDI in, 1

Automobile Industries, 73 Automobile industry: background of, 60; manufacture of parts for, 81; decontrol of FDI in, 203; in Inner Door period, 231-241. See also individual firms by name Automobile Manufacturing Industry Law (1936), 54,55, 86; restrictions on foreign companies, 87-88 Automobile Trading Company, 60 Axis, Japan's postwar relations with, 291111 Babcock & Wilcox, 42, 104 Baker, Robert, 216-217,330n62 Baldwin (president Otis Elevator), 133 Bank of Japan (BOJ): and foreign investment, 156; and TI, 320-321n135 Banks, restrictions on FDI in, 24 Bawon's, 72 Barton, W. M., 29-30 Bechtol, Richard F., 330n62 Becker, Joseph de, 278115. Behn, Sosthenes, 95 Belgium, U.S. FDI in, 1 Bell, Alexander Graham, 27 Bell Laboratories, 174 Berliner, Emile, 36 Big Three. See Ford; GM; Chrysler Birkenstock, James, 188, 189-190,319n118 Brady, Anthony, 26 Branch, Benjamin, 209 Brazil, U.S. FDI in, 1, 242 Breech, E. R., 147 British-AmericanTobacco Company (BAT), 300n42 British Columbia, 36, 38, 42 British East India Co., 16

Index British TabulatingMachine Company (BTM), 301n57 Buick, 69 Bungei shunje 50 Burroughs calculating machines, 116 Business, Japanese: restrictions on FDI by, 3-4, 8, 47, 52, 194, 198, 200, 296n212, 2981124; and decisions of FIC, 157; ban on Coca Cola, 166-167; and IBM, 188; during Inner Door, 205-206, 242; and Dow, 214-215, 217-218; and semiconductor industry, 228; and automotive industry, 233, 234-235; review of strategies of, 244-245; relationships with government in shaping economic policy, 249-252 Butterfield and wire, 17 "Buy Japanese," 59, 136 C. Itoh, 236,337n158 Cadillac, 70 Caltex, 110, 144-145 Canada, 2 Candler, Asa, 161 Capital: need for, 23; liberalized policy for, 199, 201, 202-203, 241; countermeasures to deregulation, 205 Capital controls: liberalization of, 202-203; political economy of Japanese, 248-252 Capital Outflow Prevention Law (1932), 55,285n28, n32 Carleton, W. T., 31 Carrier, 97 Caustic-soda industry, 213-214,327n19,329 n41; opposition to Dow, 214-218, 250 Census, machines for, 114, 115 Central Rubber Industries, 104 Chapman, Henry, 304n86 Chemical industry, 6, 48; DuPont, 191; Dow Chemical, 209-218; in Japan, 210, 241 Chevalerie, Baron Guy de la, 117-118, 119, 3041186 Chevrolet, 69, 70 China: Japanese involvement in, 49-50; GM export to, 71; foreign influence in, 243; early business enterprise in Japan, 277 nl, 338n1 Chisso, 213

Chlorine, 213, 328n34 Chlor-alkali plant, Dow, 330n62 Chrysler, 289n119; in Inner door, 231-232; and MHI, 234-235,238,335n136 Civil Property Custodian (CPC), 141 Closed Door (1940-1950), 4-5, 101-149; wartime restrictions, 103-105, 297n6; Occupation, 105-114; IBM during, 114130; Otis Elevator, 130-143; other multinationals, 143-147; conclusions, 147149 Coats, J. & I?, 42 Coca-Cola, 5; during Occupation, 110, 164; duringscreen Door, 151,161-173; development abroad, 162-164; in Japan, 164173,250,276n11;campaign against, 318319n100; and Pepsi, 319n110 Commerce and Navigation Treaty, 103 Committee on Encouragement of Consumption of Home Products, 59 Committee to Promote Domestic Industry, 73 Communications firms, restrictions on FDI in, 24 ComputingTabulating-RecordingCompany (CTR), 114 Connor, John T., 181, 183 Connor, William, 229,333n109 Computer industry, during Screen Door, 187-191. See also IBM Craig, B. J., 91 Cusumano, Michael, 338112 Dai-Ichi Bank, 236,337n158 DAT Automobile Mnaufacturing, 61, 73 Decker, Charles M., 128, 306n122 Decontrol of FDI, 203, 242; government actions, 204-205; business reactions, 205-209 Diesel Motors, 86 Disinvestment (1930s): government automobile policies Phase I, 72-74; GM response to, 74-77, 89-91; Ford response to, 77-80, 91-93; government policies Phase 11, 80-89; conclusions, 97-99 Dodge Brothers, 289n119 Dooman, Eugene, 97 Door Ajar (1899-1930), 4,20-47; foreign investment in, 4; Western Electric, 27-35;

Index

Victor Talking Machine, 36-41; other American multinationals, 41-45; conclusions, 46-47 Douglas (vice-president, Otis), 142 Dow Chemical, 5, 200, 250, 251; during Inner Door, 209-218, 328n34, 329n46; causticsoda manufacture, 218, 330n61, n62 Dow Chemical International, 212 Dow Chemical Japan, 213 218 Dow K a k ~ Dunlop Rubber, 42, 104 DuPont, 191-192 Dutch, early investments in Japan, 338n1 Dyestuff manufacture, restrictions on FDI in, 24 Eastman Kodak, 196,241 Economic and Scientific Section (ESS), (SCAP), 126, 141 Edison Machine Works, 28 Electric-light-bulb industry, 58 Electrical-component industry, 6 Electrical industry, 48 Electricity, Japanese development of, 29 Electronics industry: and GSI, 174; and TI, 178; in Japan, 179, 181, 241; Motorola, 219 Electronics Industry Act (1957), 189 Electronics Industry Association of Japan (EIAJ), 180, 182, 185; and IBM, 189 Elevator industry, 6, 131-132, 139-140. See also Otis Elevator Emerson (radios), 94 Enemy Property Control Law (EPCL), 104,311n198 English Electric, 42 Enterprise Reconstruction and Readjustment Law (ERRL), and Tijyb Otis, 140 Europe, automobile imports from, 63 Exports, Japanese, 199; of automobiles, 231232 Fairchild: and electronics patents, 185; in Japan, 195-196,220; on Okinawa, 222 Fanta, 317n87 Foodstuffs, 6 Forbes, 48 Ford, Henry, 66

Ford, Henry 11,147,233,334n123, n127,336 11143 Ford International, in Inner Door period, 23 1 Ford Japan, training of managers by, 81 Ford Motor Company, 4,22,41,250; withdrawal of, 50; foreign investment by, 6469, 276n11; Japanese assembly plant of, 67,72; police activity concerning, 68; response to government pressures, 77-80, 91, 293n179; in postwar period, 146, 200,333n116; and Mazda, 235-236,239240,336n143 Foreign Capitl and Japanese Indtlstry, 51 Foreign direct investment (FDI): by U.S., 1, 278n11; paucity of, 1-3; restrictions on, 3,18; Japanese treatment of U.S., 4; availability of documents on, 7; early attempts at, 18-19; first authorization of, 20-21; restrictions on, 22-27; during Door Ajar, 46-47; during Sliding Door, 48-99; incentives for, 48; during Closed Door, 101-149; during Occupation, 105115; during Screen Door, 150-161, 197198; and FIL, 155; and capital liberalization, 202-204; Japanese attitudes towards, 243-244; managed access of, 244-247; defined, 275111, 313n21. See also Decontrol; Restrictions; and individual companies by name Foreign exchange: controls on, 55-56, 89; and GM, 89; during Occupation, 109110 Foreign Exchange Bureau, 76 Foreign Exchange Control Law (FECL, 1933), 56 Foreign Exchange Control Law (FECL 1949), 159-160, 161,313n21 Foreign Exchange Control Law (FECL 1980), 204 Foreign Investment Board (FIB), 113, 200201n47 Foreign Investment Commission (FIC), 111-113 Foreign Investment Council of the Ryukyu government, 222 Foreign Investment Council (during Occupation), 2981126

Index Foreign Investment Deliberation Council (FIDC), 156; Working Committee, 157; abolition of, 204 Foreign Investment Law (FIL, 1950), 5, 7, 129, 155; coverage of, 155-156; function of business in, 157; and TI, 177; and IBM, 188; abolition of, 204 France: FDI in Japan, 1; commercial treaty with, 17; multinationals of, 43; TI in, 175-176 Friendship, Commerce, and Navigation (FCN) treaties, 154, 160, 183, 312313n10 Fuji Photo Film, 104 Fujitsu, 188, 190 Fujiyama family, 316n70 Fukuda (MITI minister), 177 Fundamentals of Our National Policy, The, 10 Furukawa, Baron, 41,320n127 Furukawa Electric Company, 91, 92

gaiatsu (foreign pressure), 17 gaishi haijo (exclusion of foreign capital), 18-19 Galvin, Paul, 218 Galvin, Robert, 219,220-221,227,332n81 Galvin Manufacturing Corporation, 218 General Electric, 22; early FDI in Japan, 41; restrictions on, 52; agitation against, 58 General Foods, 192 General Motors (GM), 4, 22, 41; withdrawal of, 50; foreign investment by, 6972, 276n11; plant in Osaka, 70-71, 289 n118; response to government pressures, 74-77, 89-91, 293n179; negotiations with Nissan, 75-77, 250; in postwar period, 146, 200; in Inner Door period, 231; and Isuzu, 236-237, 238-239, 336 n147 General Motors Japan, 71; training of managers by, 81 GM Overseas Operations (GMOO), 71 genkyoku ('briginating section"), function of, 157-158 Geophysical Services Incorporated (GSI), 174. See also Texas Instruments George J. Meyer Company, 170 Germany: FDI in Japan, 1,287n54; multinationals of, 43; GM in, 74; IBM in, 115

Goodrich, B. F., 22, 57; early FDI by, 41; postwar, 144,241 Government, Japanese: restrictions on FDI by, 3, 8, 53-60; promotion of foreign investment by, 32, 43; backing of telephone industry, 32-33; on phonograph industry, 39, 41; on foreign exchange, 55-56; native firms subsidized by, 60; disinvestment policies of, Phase I, 72-74; Phase II,80-89,93,95,284n19,294n184; wartime restrictions of. 103-105: under Occupation, 111; and elevator industry, 135, 136; and Coca-Cola, 164-173; and Texas Instruments, 178, 186-187; and electronics, 179-180,182,188-189; change of policy in 1970s, 199, 204-205, 246; and chemical industry, 210; and automobiles, 232-233, 235; economic policymaking of, 248 Gramophone Company, 36-37 Grandgerard, C. P., 135, 136, 140-141 Gray, Harold, 229 Great Britain: commercial treaty with, 17; early multinationals of, 42-43; wartime seizures of property of, 104; electronics in, 179 Great Kanto Earthquake, 22; effect on telephone industry, 65-66, 70; and elevator industry, 131 Greater East Asia Co-Prosperity Sphere, 49 Grew, Ambassador Joseph, 58, 97, 286n43, n45 Haggerty, Patrick E., 175, 182, 184,219n118 Hakuy~shaMotors, 61 Haley, John, 249 Hashimoto Masujiri?~,61 Hayakawa Electric, 184 Hayashi shin tar^, 152, 153 Heimlich, Richard, 231 Hirose, General, 304n92 Hitachi, 188; and elevator manufacture, 132; and electronics, 179 Hodgson, Richard, 196 Hoechst, 3281126 Hogan, Lester, 221 Hokkaido, land for Dow in, 215-216 Holding Company Liquidation Commission (HCLC), 125; and Otis Elevator, 140

Index

Holland, electronics in, 179 Hollerith, Herman, 114, 116 Holt, John, 117 Honda Sanae, 234 Horn, F. W., Trading Company, 36,37 Howard, Graeme K., 70-71,74 Hull, Cordell, 58 Humphrey, Hubert, 334-335n127 Iacocca, Lee, 337n155 IBM Japan, 129, 130 Ibuka (president, Sony), 176 Imamura Yoshinobu, 228 Imperial Elevator Manufacturing, 131 Imperial Life Insurance, 117 Import duties: and Japanese manufacture of foreign parts, 30; on imported auto pans, 73 Imports: government control of, 56-57; of automobiles, 63, 89; licenses for, 89 Inagaki Sanae, 304n88,306n120 Industrial Bank of Japan (IBJ): establishment of, 24-25; encouragement of portfolio, 25-26 Industrial development institutions, restrictions of FDI in, 24 Industrial Rationalization Movement, 59 Industrialization,Japanese, before World War 11, 48 Inner Door (1970-1980), 5, 199-242; motives for restrictions, 201-202; methods, 202-209,326n7,327n9; Dow Chemical, 209-218; Motorola, 218-231; automotive industry, 231-241; conclusions, 241242 Insurance companies, restrictions of FDI in, 24 Integrated circuits (ICs): manufacture of, 179; development of in Japan, 181, 322 n166; Japanese export of, 183-184 International Bell Telephone (IBT), 27 1nternational'~usinessMachines (IBM), 5, 250; during Occupation, 102, 110, 124130; initial contacts with Japan, 114119, 301n58; during the war, 119-124; demand for products after the war, 126; recovery of assets, 128-129, 306n118; reopening of business, 129-130,276n11; and Texas Instruments 175, 319n118; during Screen Door, 187-191,324n192

IBM Japan, 190 International Monetary Fund (IMF): Japan's observation of, 154; membership in, 201 International Nippon Electric Company (INEC), 143-144 International Suitomo Electric Industries (ISEI), 143-144 International Telephone & Telegraph (ITT), 95-96, 196; during the 1940s, 143-144; postwar, 241 Irvine, William, 63 Ishikawajima Shipbuilding, 61, 73 Isuzu, 73,146; and General Motors, 236-239 Italy, automobile imports from, 63 Iwadare Kunihiko, 28-29, 31 Iwamura Masaomi, 165 Iwasaki Koyota, Baron, 91 Japan-America Phonograph Manufacturing, 36 Japan Automobile Manufacturers Association, 233-234 Japan Caustic Soda Industry Association (JCSIA), 215 Japan Columbia Phonograph, 38 Japan Cotton Company (Nihon Menka), 71 Japan Crane Manufacturing, 131 Japan Elevator Manufacturing, 131,132,139; and "Buy Japanese" Campaign, 136 Japan Fruit Juice Association, 167 Japan Iron Manufacturing, 54 Japan Life Insurance, and IBM, 117 Japan Office Supplies, 305n109 Japan Phonograph Trading Company, 36,38 Japan Porcelain (Nagoya), 116 Japan Soft Drink Industries, 169 Japan Steel Products Company, 58; strike at, 286n43 Japan Tabulating and Accounting Machines, 305n109 Japan Tabulating Machine Co. (JTM), 121122, 304n95, 304-305n96; manufacturing by, 122; after the war, 125-126, 128, 306n122 Japan Victor (JVC), 94-95 Japan Watson, 118-119, 302n73, n76; during the war, 119-124 Jardine, Matheson & Company, 17 Jinushi Ennosuke, 120,303n86

Index

Jitsuya Automobile Company, 61 Johnson, Chalmers, 235,248,284n15 Johnson, Eldridge, 36 Jtijiya music store, 37 Keishin Company, 61 Kamiya S h ~ t a r81,89,202,293n179 ~, Kanebo (Kanegafuchi Industries, 123 Kanegafuchi Chemical Industry, 191 kanzen jiyaka ("complete liberalization"), 203 Karata (of Hitachi), 190 Kashima Kaname, 215 Katzenstein, Peter, 248 Kawaguchi Electric Tabulating Machine, 301 n59 Kawamata Katsuji, 233 Kawasaki, 36 Kawasaki Heavy Industries, 236 Keidanren, 153; 312118 keiretsu groups, 205-206 Kilby,Jack, 174,177,185; patents of, 220,323 n174 Kinki Coca-Cola Bottling Company, 172, 173 Kirin Beer, 167, 170-172,250,317n92 Kitagawa Sssuke, 123 Kobayashu (NEC chairman), 155,196 Kobe, 63,70 Kobe Steel, 123 Kodak Japan, 104 Komai (president, Hitachi), 322n166 Komiya RytitarQ 153 Kopf, Benjamin, 67; response to government pressure, 78-80,91-93,294n191,295n197 Korea, 49 Koyasu, Ford at, 72 Krasner, Stephen, 248-249 Kurosawa Trading, 117 CAir Liquide, 43,52 Land: foreign ownership of, 23; cost of, 207; difficulties in acquiring, 215-216 Law Concerning Emergency Dispositions Relative to Imports and Exports, 56 Law Concerning Import Taxes on Luxury Goods, 38 Laws on FDI, 54,284n15, n19 Levy, Stephen, 223,228 Libbey Owens Sheet Glass, 144

Licensing agreements, 197-198,325n211 Light machinery, 48 Light Metal Manufacturing Industry Law (1939), 55 Lockwood, William, 283n94 Lodge, George, 249 MacArthur, General, 139 Machine Record Centers (MRCs), 126 Machine Record Units (MRUs), 126 Machine Tool Manufacturing Industry Law (1938), 55 Maeda Takeshira, 31,32 Makita Yoichir~,234, 238 Mallen, T. Kevin, 128, 129,30611122 Managed access, 244-247 Manchukuo, 49,91 Manchuria, automobile shipments to, 74 Manchuria Automobile Co., 146 Matsuda Kljhei, 236,336n143 Matsushita Electric, 180, 323n171 May, Richard, 74 Mazda, 235. See also TGyG K6gy6 Meiji government, FDI under, 18-19,338111 Memory chips, 23 1 Metal-oxide-silicon(MOS), for integrated circuits, 230 Methodology, in study, 4-9 Mexico, U.S. FDI in, 1,242 Microprocessors, 225, 231 Militarism: and restrictions on FDI, 50, 51, 53; and automobile industry, 74,80 Military authorities: and automobile policy, 72-73, 76-77, 79; expropriation by, 146, 311n198 Military Vehicles Subsidy Law, 61 Mine, Commissioner, 29 Mining, restrictions on FDI in, 24 Ministry of Agriculture (MOA), 166, 167, 168, 169, 172 Ministry of Commerce and Industry (MCI), 57,59,73; on GM and joint investment, 75; promotion of native industry by, 80; Aikawa as advisor to, 81; and E M , 118 Ministry of Communications (MOC), 28 Ministry of Education, 50 Ministry of Finance (MOF), 56,3 14n29; on FDI restrictions, 107; during Occupation, 109; and IBM, 118; and Otis, 137, 30911163; and Texas Instruments, 177

Index

Ministry of International Trade and Industry (MITI), 248, 312x18, 314n29; and Texas Instruments, 177, 178, 180, 182, 185; and IBM, 188-190; and DuPont, 191-192; liberalization by, 201; and Dow, 216-217, 329n53; and Motorola, 221, 223; and automotive industry, 234, 235, 335n137; as agency for economic policy of government, 248-249 Ministry of Transportation (MOT), 314n29 Mitchell, D. T., 39 Mitsubishi, 91,92; and oil, 96; and elevators, 132 Mitsubishi Electric, 132; and electronics, 179,181,184,196,322n167 Mitsubishi Heavy Industries (MHI), 123,335 n131; and Coca-Cola, 170, 250, 317n93, 319n110; and Chrysler, 234-235,238 Mitsubishi Monsanto Chemical Co., 210 MitsubishiMotor Corporation (MMC),234235, 238, 335n134; and Chrysler, 337 n155 Mitsui & Co., 43; and GM, 69; wartime acquisitions of, 104; on calculating machines, 115, 124; and elevators, 133, 134-136,137,308n156 Miyoshi Electrical Manufacturing Company, 32,34 Miyazawa Kiichi, 239 Mizushina KG, 116-117, 119, 303n83, 305 n104,306n114,n122 Mogh, 316n71 Monsanto Chemical, 31011193 Morimura Brothers, 116 Morimura Yoshiyuki, 304n92 Morita Akio, 155, 184,322n169 Moss, Frank, 171,172,317n93, n94,318n110 MOSTEK, 229 Motokawa Ichir4 136 Motor vechicle industry, 6, 48, 53; restrictions on FDI in, 54 Motorola, 5,200,218-231; foreign plants of, . 219; attempts to enter Japanese market, 220-231,250,251,331n78,332n99; purchase of share in AizuTakci, 229-231 Motorola Semiconductors Japan, Ltd., 221, 225 Multinational corporations (MNC): FDI by in Japan, 2-3; criteria for choice of, 5-6; during Door Ajar, 27, 41-45; strategies

of, 27-41; Western Electric, 27-35; Victor Talking Machine, 36-41, 93-94; harassment of, 58; during Sliding Door, 60-99; GM, 89-91, 236-239; Ford, 91-93,235-236,239-240; during Closed Door, 114-149; IBM, 114130, 187-191; Otis, 130-143; ITT, 143-144; control of during Screen Door, 155-161; CocaCola, 161-173; Texas Instruments, 174187; DuPont, 191-192; Singer Sewing Machine, 194; Fairchild, 195-196; Dow Chemical, 209-218; Motorola, 218231; Chrysler, 234-235,238. Seealso individual firms by name. Nakagawa, Governor (Osaka), 68 Nakayama Ryiiji, 29-30 National Cash Register (NCR), 97; postwar, 144 National City Bank of New York, 58; during Occupation, 110 National General Mobilization Law, 286n37 National Semiconductor, 222-223 National Soft Drink Industrial Society, 167 Nationalism: and restrictions on FDI, 5051; 53,243; and automobile industry, 74, 80 Needham, George, 224 Neoprene, 191-192 NestlC, 50 Netherlands: U.S. FDI in, 1; early traders from, 16-17 Nihon B i k u t ~Chikuonki (Victor ~ a l k i n g Machine Company of Japan), 39 Nihon Sangyh72 Nippon Electric Co. (NEC), 33-34, 143, 188; development of, 34-35; and ITT, 95, 296n212; electronics, 179, 180; and IBM, 190; and Fairchild, 196 Nippon Electric Limited Partnership, 3132,33-34; development of, 34-35 Nippon Hoechst, 210 Nippon Sheet Glass, 144 Nippon Steel, 236 Nippon Telephone and Telegraph (NTT), 179,188 Nipponophone Company, 38 Nishioka Toshio, 121 Nissan, 72,250; cooperation with GM, 7577; on government support, 80; and auto-

Index

Nissan (continued) motive parts, 81; license for, 86; and Ford, 92,93; and Victor, 94; during Inner Door, 233 Nitta Phonograph, 39 Niwa Yasujir434 Nomura Securities, 233 Noyce, Robert, 195 Occupation, 101; restrictions on FDI during, 5, 105-114, 245, 2981126, 310n193; IBM during, 124-130,305n105; oil companies during, 145,310-311n195 Ohata G e n i c h i r ~34 Oi Saitaro, 34; visit to the U.S., 28-29 Oki & Company, 27-28, 31, 34, 280n38, 296n212 Oki Electric, 95, 188 Okimoto, Daniel, 249 Okinawa, reversion to Japan, 222-223,247 Okumura Tsunao, 233 Organic Synthesis Manufacturing Industry Law, 284n23 Organization for Economic Cooperation and Development (OECD), 150; and FDI, 2,154,201 Oriental Elevator, 137, 139 Oriental Engineering Industries, 124, 138139 Osaka: phonograph industry in, 36; GM in, 70-71 Osaka Gas Company, 26 Otis Elevator, 5,22,97,132; during Occupation, 102, 139-140; initial contacts, 130136, 308n156; during the war, 137-139; postwar, 141-143,251,276n11; Shanghai branch of, 309n163 Outer Gates, 16-19; early foreign trade during, 16 "Overview of the Opinions and Wishes of the Industrial World Concerning Foreign Capital Induction," 108 Oxygen industry, 52 Ozaki Yukio, 23 Patents: wartime seizure of, 104,120; in electronics, 181-182,184,185,323n174; and IBM, 190,191,324n180 Peightol, Theodore, 330n62

Pempel, T. J., 248 Pepsi-Cola, 316n83,317n95,318n102, n103; lack of success in Japan, 319n110 Perry, Commodore Matthew, 17 Petroleum industry: U.S. FDI in Japan, 7,8, 144; restrictions on FDI in, 54, 55, 78; during the Occupation, 145-146, 3 11 n195; and GSI, 174 Petroleum Industry Law (1934), 54,78,96 Philco, 94 Philips, 179, 180; and Matsushita, 323n171 Phillips, Harry B., 289n118 Phonograph industry, 6, 281n58; Victor Talking Machine, 36-41, 93-94; Emerson, 94; Philco, 94; Motorola, 218 Pine Sewing Machine, 194 Plastics, 212 Plessey, 179 Portugal, early traders from, 16 Powers computers, 116, 124, 128, 305n105. See also Remington Rand Press, Japanese, hostility towards U.S. companies, 286n45 Public utilities, restrictions on FDI in, 24 Rabinowitz, Richard, 155 Radio: all-transistor, 175; in Japan, 177 Radio Corporation of America (RCA), 37. See also Victor Railroads, restrictions on FDI in, 24 Reischauer, Edwin, 221 Remington Rand, 125 Resident, defined, 314n36 Restrictions on FDI, 22-27, 247; public (motives) 22-23, 50-53, 105-109, 152153, 201-202; (methods) 24-27, 53-60, 103-105, 109-114, 154-161, 202-209; during Door Ajar, 46-47; pre-World War 11, 49; during Sliding Door, 97-99; during ClosedDoor, 103-147; wartime, 103105; Occupation, 105-114, 144; during Screen Door, 152-161, 197-198, 205209; review of strategies of, 244 Roberge, Robert, 66,68; on local assembly of Fords, 66-67 Roche, James K., 238 Roche, William, 176,323n174 Russia, commercial treaty with, 17 Russo-Japanese War, 61

I

Index Sabashi Shigeru, 312118 Sakatani Yoshir6 24 sakoku (closed country), 17 Sale & Frasar, 37-38; as Ford agent, 65,6667,69 Samuels, Richard, 249 Sanky6 Trading Company, 65 Sapporo, 167,250 Scott Paper, 192 Screen Door (1950-1970), 5, 150-198; motives for restrictions on FDI, 152-153; methods, 154-161; Coca-Cola, 161-173; Texas Instruments, 174-187; other multinationals, 187-197; IBM, 187-191; DuPont, 191-192; conclusions, 197-198 Seiko, 229 Semiconductor industry in Japan, 195-196; Motorola, 219-220, 226-250; Japanese share in, 228 SemiconductorManagement Committee, 182, 184 Sewing machineindustry, restrictions on FDI in, 52,194 Shell, 78 Shepherd, Mark, 176, 177, 178 ShibauraElectric, 41,43,52,121; and Victor, 94,146 Shibaura Engineering, 41 Shibusawa Keiz6304n92 Shibusawa Baron Tom4 23, 119,3031182 Shimamura KG123 Shimizu Yoshichira, 121 Shin-Mitsubishi Heavy Industries, 170 Shipbuilding Industry Law (1939), 55 Sh6wa D e n k ~ 191-192 , S h ~ w Neoprene, a 192 Siemens, 45, 179 Signetics, 220 Sims, Edwin, W., 135 Singapore, TI in, 176 Singer Sewing Machine, 22, 52, 57, 58; during Occupation, 110; during ScreenDoor, 194; slanders on, 283n10 Sino-Japanese War (1894-1895), 23 Sino-JapaneseWar (1937), 50 Sliding Door (1930-1940), 4, 48; FDI in, 4; incentives for FDI in, 48-50; restrictions on multinationals in, 50-60, 80-89; multinational strategies in, 60-80, 93-97;

Ford Motor Co. during, 64-69, 77-80, 91-93; General Motors during, 69-72, 74-77, 89-91; other American multinationals, 93-97; conclusions, 97-99 Socony-Vacuum, 286n45 Soft-drink industry, 166-167. See also CocaCola Sony: and Texas Instruments, 176, 184; and electronics, 181, 183-184,322n169 Spencer, William, 3041186 Siable shareholding (antei kabunttshg, 206207 Standard Oil, 78 Standard-Vacuum Oil Co., 96, 144-145 State, restrictions on FDI by, 3. See also Government Statistics Research Institute, 123 Strikes, 58,286n43 Sumitomo Bank, 239-240 Sumitomo Electric, 35,95-96, 143,296n212 Supreme Commander for the Allied Powers (SCAP), 105; actions of, 109-113, 299 n38, 300n47; standards for investment under, 113; use of computers by, 127; and elevator industry, 139; restrictions by, 144,310n193; and Coca-Cola, 166 Survey Council for the Establishment of the Automobile Industry, 73 Suzuki Kanemitsu, 89,293n179 Swedish Match, 43 Tabulating Machine Co., 114 Tabulating machine industry, 6, 115-116. See also IBM Tachikawa Aircraft, 3031183 Taiwan, 49 Takahashi Korakiyo, 53,74 Takanashi Nisabur~,and Coca-Cola, 165, 167, 168-169,173,316n71 Takata and Company, 29 Takeo Mimi, 181 Tanaka (MOF minister), 177 Tariffs,Japanese: revision of, 21-22; as incentives for FDI, 49; during Screen Door, 151; and electronics, 179; and semiconductors, 220; and automotive industry, 232 Tax rates, for Japanese vs. foreign cars, 73,290 11129

Index

TDK Electronics, 222 Technology, and Texas Instruments, 174 Technology, transfer of: by NEC, 35; by Victor, 41; by foreign multinationals, 43; by Ford and GM, 72; during Screen Door, 151; in electronics, 180, 182, 189; licensing of, 196, 197-198; in chemical industry; need for, 244 Technology assistance agreements (TAA), 203 Teijin Hercules, 210 Telecommunications,Motorola, 219 Telephone industry, 6; Western Electric, 2735; government backing of, 32-33 Television industry, Motorola, 218-219 Temporary Industry Rationality Bureau ( T W , 59 "Ten Commandments for Foreign Investors," 203,326-327118 Territorial expansion, and industrialization, 49 Texas Instruments (TI), 5; during Screen Door, 151, 174-187; and electronics, 174-175; expansion overseas, 175-176; in Japan, 176-187, 221, 250, 276n11, 320n135; and IBM, 319n118; and Sony, 32211169 Textile industry, 48 Thayer, Harry, 28-29; on direct investment in Japan, 30,33 Tidewater Associated, 144 Toa Electric, 95,296n212 T ~ h o k uSemiconductor Corporation, 231 Toida Makoto, 230 T 6 k Inc. ~ 229,230; and Motorola, 230-231 Tokyo: telephones in, 28; phonograph industry in, 36 Tokyo Automobile Works, 60 Tokyo Electric Company, 41, 52; and IBM, 120-121,3041187, n88 Tokyo Gas and Electric, 61, 73 Tokyo Soft Drink Company, 169 Tomatsu Koji, 131, 132 Toshiba, 121, 123; and electronics, 179, 188, 190; and Motorola, 23 1 Totani Shinz6,323n170 Toyo Babcock, 299-301n47 T6y6 KSgy6 (Mazda), 235-236; and Ford, 239-240,33611141, n143

TGy5 Otis Company, 135, 136, 137, 139; postwar, 142 Toyoda Risabur6,91,92 Toyoda Sakichi, 81 Toyota, 80; and automotive parts, 81; government license for, 86; and Ford, 92, 333n116; during Inner Door, 205-207, 233 Transistors: and GSI, 174; and IBM, 188 Treaties, 278112; Treaty of Peace (1952), 154; Friendship, Commerce, and Navigation (FCN), 154; abolition of unequal, 224 Treaty of Commerce and Navigation (1911), 54 Treaty of Peace (1932), 154 Treaty Settlements, 17; foreign trade outside, 17-18 Tsuruhara, Mayor, 26 Tsurumi, Ford factory at, 79 Uchiyama Jir6, 123-124 Uhde, 328x126 Unequal treaties, and capital liberalization, 23 United Kingdom, FDI in Japan, 1-2. See also Great Britain United States: FDI in Japan, 1,46-47; commercial treaty with, 17; FDI first permitted, 20; multinational strategies of, 27-47; automobile imports from, 63; on foreign exchange, 93; FCN with, 154; development of Coke in, 161-162; electronics in, 179; lack of government support for investors of, 246,247 United States Strategic Bombing Survey (USSBS), calculating machines for, 126127 United Technologies, 229 Venezuela, 242 Vernon, Raymond, 146 Vickers Armstrong, 42 Victor Clubs, 38 Victor (RCA), restrictions on, 93-94 Victor Talking Machine, 4, 22, 36-41, 47, 250; international business of, 37; records by, 37-38; FDI by, 38-41, 276n11; plant in Yokohama, 39-40 Vogel, Ezra, 248

1

I

Index

Wadsworth Elevator, 132 Walsh, Hall, and Co., 17 Wartime Law on Industrial Property Rights (WLFR), 104,120 Watson, Arthur K., 233 Watson, Thomas, Sr., 114, 118 Watson, Thomas, Jr., 319n118 Watson Tabulating Machines. SeeJapan Watson Waygood-Otis, 132,133 Weisz, William, 223 welled E R., 28 Western Electric, 4, 22, 47, 250; multinational strategies of, 27-35; direct investment in Japan, 32, 276n11; links with NEC, 33-35 Westinghouse, technology licensed by, 196 Wieland, Arthur J., 147 Wilkins, Mira, 163 Woodruff (president, Coca-Cola), 163 World War I: and need for capital, 23; automobile imports during, 63 World War II:FDI during, 101-102; wartime restrictions, 103-105; and GSI, 174

Xenophobia, pre-World War II,50

Yamaba Torao, 60 Yamagata, Governor (Hyogo), 68 Yamamoto (president, Asahi), 171 Yanase Automobile Company, 69-70 Yanase Ch~taro,69,70,71 Yano Ichirb, 304n92 "yen-base system," 160, 192, 194, 3141140, 325n198,325n6 Yokohama, 17; telephones in, 28; automobile trade in, 63; Ford assembly plant in, 67,78,333n116 Yokohama Dock Company, 67,68 Yokohama Rubber, 41,144 Yokohama Specie Bank (YSB), 137 Yoshizawa Accounting Machine, 124 Yoshizawa Shinzabur~,124

zaibatstr: and foreign investors, 97; dissolution of, 124,125,140 Zysman, John, 248

larvard East Asian Monographs

Liang Fang-chung, The Single-Whip Method of Taxation in China Harold C. Hinton, The Grain Tribute System of China, 1845-1911 Ellsworth C. Carlson, The Kaiping Mines, 1877-1912 Chao Kuo-chun, Agrarian Policies of Mainland China: A Documentaiy Study, 1949-1 956 Edgar Snow, Random Notes on Red China, 1936-1945 Edwin George Beal, Jr., The Origin of Likin, 1835-1864 Chao Kuo-chun, Economic Planning and Organization in Mainland China: A Documentaiy Study, 1949-1957 John K. Fairbank, Ch'ing Documents: An Introductory Syllabus Helen Yin and Yi-chang Yin, Economic Statistics of Mainland China, 1949-1957 Wolfgang Franke, The Reform and Abolition of the Traditional Chinese Examination System Albert Feuerwerker and S. Cheng, Chinese Communist Studies of Modem Chinese Histoty C. John Stanley, Late Ch'ing Finance: H u Kuang-yung as an Innovator S. M. Meng, The Tsungli Yamen: Its Organization and Functions Ssu-yu Teng, Histoiiography of the Taiping Rebellion Chun-Jo Liu, Controversies in Modern Chinese Intellectual Histofy: An Analytic Bibliography of Periodical Articles, Mainly of the May Fourth and Post-May Fourth Era Edward J. M. Rhoads, The Chinese Red Army, 1927-1963: An Annotated Bibli~PP~Y Andrew J. Nathan, A Histofy of the China International Famine Relief Commission Frank H. H. King (ed.) and Prescott Clarke, A Research Guide to China-Coast Newspapem, 1822-1911 Ellis Joffe, Party and Aimy: Professionalism and Political Control in the Chinese Oficer Corps, 1949-1 964 Toshio G. Tsukahira, Feudal Contlal in Tokugawa Japan: The Sankin KGtai System

Kwang-Ching Liu, ed., American Missionaries in China: Papers fiom Harvard Seminars George Moseley, A Sino-Soviet Cultural Frontier: The Zli Kazakh Autonomous Chou Carl F. Nathan, Plague Prevention and Politics in Manchuria, 1910-1931 Adrian Arthur Bennett, John Flyer:. The Introduction of Western Science and Technology into Nineteenth-Century China Donald J. Friedman, The Road fiom Isolation: The Campaign of the American Committee for Non-Participation in Japanese Aggression, 1938-1941 Edward Le Fevour, Western Enterprise in Late Ch'ing China: A Selective Survey of Jardine, Matheson and Company's Operations, 1842-1895 Charles Neuhauser, Third World Politics: China and the A@-Asian People's Solidarity Organization, 1957-1967 Kungtu C. Sun, assisted by Ralph W. Huenemann, The Economic Development of Manchuria in the First Half of the Twentieth Centmy Shahid Javed Burki, A Study of Chinese Communes, 1965 John Carter Vincent, The Extraterritorial System in China: Final Phase Madeleine Chi, China Diplomacy, 1914-1918 Clifton Jackson Phillips, Protestant America and the Pagan World: The First Half Centuty of the American Board of Commissionersfor Foreign Missions, 1810-1860 James Pusey, W u Hun: Attacking the Present through the Past Ying-wan Cheng, Postal Communication in China and Its Modernization, 18601896 Tuvia Blumenthal, Saving in ~ o s i w a Japan r Peter Frost, The Bakumatsu Currency Crisis Stephen C. Lockwood, Augustine Heard and Company, 1858-1862 Robert R. Campbell, James Duncan Campbell: A Memoir by His Son Jerome Alan Cohen, ed., The Dynamics of China's Foreign Relations V. V. Vishnyakova-Akimova, Two Years in Revolutionaly China, 1925-1927, tr. Steven I. Levine Meron Medzini, French Policy in Japan during the Closing Years of the Tokugawa Regime The Cultural Revolution in the Provinces Sidney A. Forsythe, An American Missionaty Community in China, 1895-1905 Benjamin I. Schwartz, ed., Reflections on the May Fourth Movement: A Symposium Ching Young Choe, The Rule of the Taewcn'gun, 1864-1873: Restoration in Y i Korea W . P. J. Hall, A Bibliographical Guide to Japanese Research on the Chinese Economy, 1958-1 970 Jack J. Gerson, Horatio Nelson Lay and Sino-British Relations, 1854-1864 Paul Richard Bohr, Famine and the Missionary: Timothy Richard as Relief Administrator and Advocate of National Refotm

Endymion Wilkinson, The Hktory of Imperial China: A Research Guide Britten Dean, China, and Great Britain: The Diplomacy of Commercial Relations, 1860-1 864 Ellsworth C . Carlson, The Foochow Missionaries, 1847-1880 Yeh-chien W a n g , An Estimate of the Land-Tax Collection in China, 1753 and 1908 Richard M. Pfeffer, Understanding Business Contracts in China, 1949-1963 Han-sheng Chuan and Richard Kraus, Mid-Ch'ing Rice Markets and Trade, An Essay in Price History Ranbir Vohra, Lao She and the Chinese Revolution Liang-lin Hsiao, China's Foreign Trade Statistics, 1864-1949 Lee-hsia Hsu Ting, Government Control of the Press in Modern China, 19001949 Edward W . Wagner, The Literati Purges: Political Confict in Early Y i Korea Joungwon A. Kim, Divided Korea: The Politics of Development, 1945-1972 Noriko Kamachi, John K. Fairbank, and Chiiz6 Ichiko, Japanese Studies of Modern China Since 1953: A Bibliographical Guide to Historical and SocialScience Research on the Nineteenth and Twentieth Centuries, Supplementary Volume for 1953-1969 Donald A. Gibbs and Yun-chen Li, A Bibliography of Studies and Translations of Modern Chinese Literature, 1918-1942 Robert H . Silin, Leadership and Values: The Organization of Large-Scale Taiwanese Enterprises David Pong, A Critical Guide to the Kwangtug Provincial Archives Deposited at the Public Record Ofice of London Fred W . Drake, China Charts the World: Hsu Chi-yii and His Geography of 1848 William A. Brown and Urgunge Onon, translators and annotators, History of the Mongolian People's Republic Edward L. Farmer, Early Ming Government: The Evolution of Dual Capitals Ralph C . Croizier, Koxinga and Chinese Nationalism: Histoiy, Myth, and the Hem William J.Tyler, tr., The Psychological World of Natsume SZseki, by Doi Takeo Eric Widmer, The Russian Ecclesiastical Mission in Peking during the E*teenth Century Charlton M . Lewis, Prologue to the Chinese Revolution: The Transfolwation of Ideas and Institutions in Hunan Province, 1891-1907 Preston Torbert, The Ch'ing Imperial Household Department: A Study of its Organization and Principal Functions, 1662-1 796 Paul A. Cohen and John E. Schrecker, eds., Refoim in Nineteenth-Centuiy China Jon Sigurdson, Rural Industrialism in China Kang Chao, The Development of Cotton Textile Production in China Valentin Rabe, The Home Base of American China Missions, 1880-1920 Sarasin Viraphol, Tribute and Proft: Sino-Siamese Trade, 1652-1853

Ch'i-ch'ing Hsiao, The Military Establishment of the Yuan Dynasty Meishi Tsai, Contemporary Chinese Novels and Short Stories, 1949-1974: An Annotated Bibliography Wellington K. K. Chan, Meldants, Mandarins, and Modern Enterprise in Late Ch'ing China Endymion Wilkinson, Landlord and Labor in Late Imperial China: Case Studies from Shandong by Jing Su and Luo Lun Barry Keenan, The Dewey Experiment in China: Educational R g o m aad Political Power in the Early Republic George A. Hayden, Crime and Punishment in Medieval Chinese Drama: Three Judge Pa0 Plays Sang-Chul Suh, Growth and Structural Changes in the Korean Economy, 19101940 J. W. Dower, Empire and Aftnmath: Yoshida Shigeru and the Japanese Experience, 1878-1954 Martin Collcutt, Five Mountains: The Rinzai Zen Monastic Institution in Medieval Japan

STUDIES IN T H E MODERNIZATION O F T H E REPUBLIC O F KOREA: 1945-1975 Kwang Suk Kim and Michael Roemer, Growth and Structural Transformation Anne 0. Krueger, The Developmental Role of the Foreign Sector and Aid Edwin S. Mills and Byung-Nak Song, Urbanization and Urban Problems Sung Hwan Ban, Pal Yong Moon, and Dwight H. Perkins, Rural Development Noel F. McGinn, Donald R. Snodgrass, Yung Bong Kim, Shin-Bok Kim, and Quee-Young Kim, Education and Development in Korea Leroy P. Jones and I1 SaKong, Government, Business, and Entrepreneurship in Economic Development: The Korean Case Edward S. Mason, Dwight H. Perkins, Kwang Suk Kim, David C. Cole, Mahn Je Kim, et al., The Economic and Social Modemization of the Republic of Korea Robert Repetto, Tai Hwan Kwon, Son-Ung Kim, Dae Young Kim, John E. Sloboda, and Peter J. Donaldson, Economic Development, Population Policy, and Demographic Transition in the Republic of Korea David C. Cole and Yung Chul Park, Financial Development in Korea, 19451978 Roy Bahl, Chuk Kyo Kim, and Chong Kee Park, Public Finances during the Korean Modemization LDrocess Parks M. Coble, Jr., The Shanghai Capitalists and the Nationalist Government, 1927-1937 Noriko Kamachi, Refotm in China: Huang Tstm-hsien and the Japanese Model

Richard Wich, Sino-Soviet Crisis Politics: A Study of Political Change and Communication Lillian M. Li, China's Silk Trade: Traditional Industty in the Modern World, 1842-1937 R. David Arkush, Fei Xiaotong and Sociology in Revolutionaty China Kenneth Alan Grossberg, Japan's Renaissance: The Politics of the Mutamachi Bakufu James Reeve Pusey, China and Charles Darwin Hoyt Cleveland Tillman, Utilitarian Confucianism: Ch'en Liang's Challenge to Chu Hsi Thomas A. Stanley, &ugi Sakae, Analzhist in Taish6 Japan: The Creativity of the Ego Jonathan K. Ocko, Bureaucratic Refoim in Provincial China: Ting Jih-ch'ang in Restoration Kiangsu, 1867-1870 James Reed, The Missionary Mind and American East Asia Policy, 1911-1915 Neil L. Waters, Japani Local Pragmatists: The Transition fiom Bakumatsu to Meiji in the Kawasaki Region William D. Wray, Mitsubishi and the N.Y.K., 1870-1914: Business Strategy in the Japanese Shipping Industty Ralph William Huenemann, The Dragon and the Iron Horse: The Economics of Raihads in China, 1876-1937 Benjamin A. Elman, From Philosophy to Philology: It2tellectual and Social Aspects of Change in Late Imperial China Jane Kate Leonard, Wei Yuan and China's Rediscovery of the Maritime World Luke S. K. Kwong, A Mosaic of the Hundred Days: personalities; Politics, and Ideas of I898 John E. Wills, Jr., Embassies and Illusions: Dutch and Portuguese Envoys to K'anghsi, 1666-1 687 Joshua A. Fogel, Politics and Sinology: The Case of Nuit8 Konan (1866-1934) Jeffrey C. Kinkley, ed., After Mao: Chinese Literature and Society, 1978-1981 C. Andrew Gerstle, Circles of Fantasy: Convention in the Plays of Chikamatsu Andrew Gordon, The Evolution of Labor Relations in Japan: Heavy Industty, 1853-1 955 Daniel K. Gardner, Chu Hsi and the Ta Hsueh: Neo-Confucian Refection on the Confucian Canon Christine Guth Kanda, Shinz6: Hachiman Imagety and its Development Robert Borgen, Sugawara no Michizane and the Early Heian Court Chang-tai Hung, Going to the People: Chinese Intellectual and Folk Literature, 2918-1937 Michael A. Cusumano, The Japanese Automobile Indwtiy: Technology and Management at Nissan and Toyota Steven D. Carter, The Road to Komatsubara: A Classical Reading of the Renga Hyakuin

Katherine F. Bruner, John K. Fairbank, and Richard T. Smith, Entering China? Service: Robert Hart's Journals, 1854-1863 Bob Tadashi Wakabayashi, Anti-Foreignism and Westem Leaming in Early-Modem Japan: The New Theses of I825 Atsuko Hirai, Individualism and Socialism: The Life and Thought of Kawai Eijila (1891-1944) Ellen Widmer, The Margins of Utopia: Shui-hu hou-chum and the Literature of Ming Loyalism R. Kent Guy, The Emperor's Four Treasuries: Scholars and the State in the Late Ch'ien-lung Era Peter C. Perdue, Exhausting the Earth: State and Peasant in Hunan, 1500-1850 Susan Chan Egan, A Latterday Confucian: Reminkcences of William Hung (18931980) James T . C. Liu, China Tuining Inward: Intellectual-Political Changes in the Early Twelfth Centuiy Paul A. Cohen, Between Tradition and Modernity: Wang T h o and Refolm in Late Ch'ing China Kate Wildman Nakai, Shogunal Politics: Arai Hakuseki and the Premises of Tokugawa Rule Parks M. Coble, Facing Japan: Chinese Politics and Japanese Imperialism, 19311937 Jon L. Saari, Legacies of Childhood: Growing Up Chinese in a Time of Crisis, l89O-I92O Susan Downing Videen, Tales of HeichE Heinz Morioka and Miyoko Sasaki, Rakugo: The Popular Nalmtive A1? of Japan Joshua A. Fogel, Nakae Ushikichi in China: The Mourning of Spirit Alexander Barton Woodside, Vietnam and the Chinese Model: A Comparative Study of Vietnamese and Chinese Government in the First Half of the Nineteenth Centuy, George Elison, Deus Destroyed: The Image of Christianity in Early Modern Japan William D. Wray, ed., Managing Industrial Enterprise: Casesfiom Japani Prewar Experience T'ung-tsu Ch'ii, Local Government in China under the Ch'ing Marie Anchordoguy, Computers, Inc.: Japan's Challenge to IBM Barbara Molony, Technology and Investment: The Prewar Japanese Chemical Indtrstiy Mary Elizabeth Berry, Hideyoshi Laura E. Hein, Fueling Growth: The Energy Revolution and Economic Policy in Postwar Japan Wen-hsin Yeh, The Alienated Academy: Culture and Politics in Republican China, 1919-1937 Dru C. Gladney, Muslim Chinese: Ethnic Nationalism in the People's Republic Merle Goldman and Paul A. Cohen, eds., Ideas Across Cultures: Ersays on Chinese Thought in Honor of Benjamin I. Schwartz

151. James Polachek, The Inner Opium War 152. Gail Lee Bernstein, Japanese Marxist: A Portrait of Kawa,+ami Hajime, 1879-1946 153. Lloyd E. Eastman, The Abortive Revolution: China under Nationalist Rule, 19271937 154. Mark Mason, American ~ultinaiionalsand Japan: The Political Economy of Japanese Capital Controls, 1899-1980 155. Richard J. Smith, John K. Fairbank, and Katherine F. Bruner, Robert Hart and China's Early Modernization: His Journals, 1863-1866