Japan Phone Market: Patience vs. Pressure
While angry rhetoric out of Washington continues over obstacles to trade with Japan, some American telecommunications companies have quietly landed potentially lucrative contracts with Nippon Telegraph & Telephone--the world’s second-largest phone company and a prime target of U.S. complaints about the $37-billion trade deficit with Japan.
One small Chicago company, for example, arranged such a special relationship with the Japanese telephone giant that its American engineers are allowed to “prowl the bowels of NTT labs” to find possible new telecommunications products concealed in still-secret NTT technology. The company says the relationship eventually could be worth $100 million a year.
A Michigan company signed an $8-million contract to develop high-capacity computer memory devices in a research and development arrangement that could be worth several times that amount if product development results in the company’s becoming a major supplier to NTT.
And a Massachusetts company is working on a software development contract that could allow Japanese computers to use U.S.-designed software, something that might result in new marketing opportunities for other American companies with compatible products.
The successful companies say patience and superior technological products--not political pressure--were responsible for their agreements with NTT.
“We spent two years carefully developing our relationships,” Richard Lindenmuth, president of ITT Telecom in Raleigh, N.C., said. The company recently sold about $13 million in PBX systems and standard residential phones to NTT.
“In Japan, long-term relationships are very important,” Lindenmuth added. “You don’t just walk in and say: ‘I’m here--where’s my business?’ You have to get to know each other; you have to create a market, and that takes time. American industry can’t expect the U.S. government to open all the doors.”
However, U.S. pressure is credited with influencing key Japanese concessions affecting telecommunications. For example, an equipment certification board that will rule on the acceptability of foreign products was to have been staffed only by officials from Japanese telecommunications firms. Now, the certification board will have foreign representation.
Also, the number of technical standards that foreign products have been required to meet--standards that would have prevented many American products from reaching the Japanese market--has been reduced. On April 1 the list of 53 standards was reduced to 30 and late last week negotiators announced that more than half of the remaining 30 would be dropped or modified. Other issues remain under negotiation.
Thomas Pugel, associate director of the Center for Japanese Business and Economics at New York University, said U.S. political intervention “has substantially opened telecommunications” trade with Japan. However, he cautioned against expecting too much from changes in the Japanese telecommunications market.
“Even if Japan went along with everything we wanted, it would only reduce the trade deficit by about $10 billion,” Pugel said.
Other U.S. trade officials and business analysts remain skeptical that Japan has substantially opened its telecommunications market, worth an estimated $4 billion to $8 billion, to foreign imports.
Purchases Still Low
“There have been some incremental improvements, but the volume of (NTT) purchases is well below what it ought to be,” said Paul Vishny, director of international affairs for the United States Telecommunications Suppliers Assn. in Chicago. Last year U.S. telephone equipment sales to NTT totaled about $130 million, while Japanese telecommunications sales in the United States exceeded $2 billion.
Another skeptic, Sen. John C. Danforth (R-Mo.), last week introduced legislation that would require retaliatory trade restrictions against Japan if commitments to open its market are not kept.
“It is clear that other nations are not going to open up unless we are able to apply leverage,” Danforth said.
Herbert Hayde, president of the American Chamber of Commerce in Tokyo, told the Foreign Correspondents Club in Tokyo last week that he is hopeful of a more open market. He said, however, that it will be some time before the evidence is clear because “it takes a year to 18 months for contracts to be drawn up and decisions made.”
And John Stern, Japan-based senior representative for the American Electronics Assn., said U.S. perceptions of whether the Japanese market is open or not could be “a self-fulfilling prophecy.”
“For many smaller or medium-sized American telecommunications companies, if they are told the market here is large and open, they will export,” Stern said. “If they’re told it’s small and closed, they won’t.”
Some See Changes
Some companies clearly are convinced that the market is at least opening.
“I sense strong open-mindedness in Japan,” said Leonard Reiffel, chairman and chief executive of Interand Corp. in Chicago. “They realize that their world is changing, and they’re interested in opening up their market.”
Reiffel negotiated a $5-million research and development contract last fall that includes unprecedented access to NTT technology by a foreign company. Interand, a small company that created the video graphics technology that allows television football announcers to diagram plays for viewers, earns in one year what giant NTT earns in less than two hours. However, it expects to use its access to NTT technology in developing new telecommunications products for international markets.
Pugel, of the Center for Japanese Business and Economics, called the Interand agreement extraordinary. “Japanese companies have had a sort of family relationship with NTT over the years, but Interand broke into the family,” he said. “That’s very impressive.”
Reiffel acknowledged that his company’s small size could have contributed to its success.
“We’re not an IBM--it’s an empire, a rival kingdom,” the Chicago executive said. “We’re small enough that we could be brought into the family. We’re like a young cousin--distant, but still part of the family. Family is very important in Japan.”
ITT worked at creating a family-like relationship throughout its negotiations, escorting Japanese executives to catfish fries on the Mississippi and keeping the same team of negotiators together through two years of contract talks.
Need Patience
“I wasn’t prepared for how patient I would have to be,” acknowledged Dennis Mullen, director of contract administration for SofTech, a Massachusetts software company that won a $680,000 contract to develop technical specifications for adapting a computer language for use on NTT computers.
“When you deal with the Japanese, it takes a long time. It may get frustrating, but it’s very thorough,” Mullen said, recalling a series of 12- and 14-hour days during the negotiating rounds.
Pugel said many U.S. companies are not eager to go through such a protracted negotiating process. “The payoff isn’t big enough for some companies,” he said.
The negotiating process may not have been as prolonged, however, for Energy Conversion Devices of Troy, Mich. Its contract grew out of an informal meeting between company President Stanford Ovshinsky and NTT President Hisashi Shinto in Tokyo at what was to be simply a ceremonial visit. However, Ovshinsky’s description of Energy Conversion Devices’ pioneering work in high-capacity solid state memory devices prompted Shinto to dispatch a team of engineers to Michigan.
“They had someone waiting to meet me the day I got home,” Ovshinsky said. “I think that today NTT is under dynamic leadership; I think that it will deal with a lot of U.S. companies.”
Company Converted
On April 1, NTT--which for the previous 105 years had been a government-owned monopoly--was converted to private ownership, raising hopes in the United States for increased access to the world’s second-largest telecommunications market. U.S. manufacturers now have only a 4% share of that market.
Some of the biggest names in American telecommunications--including American Telegraph & Telephone, IBM and Hughes Aircraft--are attempting to increase their presence in the Japanese market with a variety of products ranging from communications satellites to computers and software.
A spokeswoman for AT&T; International said the company is exploring “strategic partnerships” with Japanese companies.
But Interand’s Reiffel warned that America’s future trade relations with the Japanese could be harmed if the supercharged political rhetoric out of Washington generates resentment. “That would concern me,” he said.
While negotiating pressure is important, Pugel said, “it makes no sense to use the big bully approach. There’s a noticeable danger that trade relations could deteriorate quite rapidly and cause pain to both countries.”
