Corning Ventures Prove Togetherness Pays
Big-company joint ventures, a business trend for the ‘90s, are springing up like mushrooms after rain. IBM and West Germany’s Siemens have formed a venture to produce advanced memory chips; Ford and Japan’s Nissan have done the same to produce a minivan, and IBM and Motorola are working on a radio network for computer data.
And Washington may bless such ventures: Congress is debating anti-trust changes that would allow U.S. firms to share production costs and the Bush Administration is considering whether it should offer its own joint venture legislation.
But can togetherness really help competitiveness? Sure it can, in lots of ways; but it’s no free ride. As to how it works, U.S. companies need only look at Corning Inc., the 139-year-old glass-making firm, for a prime example.
Corning has formed 40 joint ventures in the United States and around the world during the past 60 years. Its name is the latter half of Owens-Corning Fiberglas, and of Dow Corning, which makes silicones--essential ingredients in electrical insulation as well as shampoo. Corning has joint ventures with Siemens of Germany, Ciba of Switzerland, Samsung of South Korea, and it has had a joint venture with Asahi Glass of Japan since 1930.
On its own, the company, based in Corning, N.Y., has $2.4 billion in sales of optical fiber for telecommunications, Corning Ware for cooking and ceramic compounds for auto-emission controls. But its sales grow to $5.4 billion if you include its interests in joint ventures.
Why work with others? Because global competitors these days “aren’t merely companies but combinations of companies, or entire nations, and even combinations of nations,” says Chairman James R. Houghton, 53, the seventh member of his family to run Corning. “No one’s strong enough to go it alone, to bend all others to its will.”
His company has used joint ventures to get into foreign markets, to gain technology or simply to make better commercial use of its own technology. For example, Corning developed optical fiber--a glass filament through which lasers carry voice and data communications--in 1970. But it formed a joint venture with Siemens to manufacture the phone cables that hold the fiber because that helped it gain access to the German market, and it was more economical than making cable on its own.
The venture, in other words, was both a cost saver and profit producer--giving Corning that extra something to spend on product improvement that has kept it world leader in fiber optics.
Keeping ahead in a tough world isn’t easy. Corning has struggled in Japan, where it had to crowbar its way into the fiber-optics market. By the time Corning got some business, Houghton says, it was on the verge of asking the U.S. government to take action. Even then, Corning couldn’t get patent recognition while Sumitomo used Corning’s process to manufacture fiber and refused to pay royalties. Corning, however, won a patent infringement suit against Sumitomo in U.S. court and was paid damages last December.
Yet Corning has also prospered in Japan, where its alliances with Asahi Glass date to before the war. During World War II, there was no contact between the firms, but afterward Corning found that Asahi had kept accounts, and Asahi subsequently paid the U.S. firm royalties for use of its glass-making processes from 1941 to 1945.
Corning and Asahi have just formed a new venture in television tubes in which the Japanese firm gets a share of Corning’s TV tube production at State College, Pa., and the U.S. firm in return gets access to Asahi’s high-definition TV tube technology.
And behind that deal lies a lesson: that to make joint ventures work, a company must be able to hold up its own end. Corning invented the glass television tube more than half a century ago and dominated the business for decades. But its customers dwindled as U.S. companies stopped making television sets. Corning didn’t drop out with them, though. Instead, it poured new effort into tube manufacturing, formed a joint venture with Samsung to help with sales in Asia and improved quality at the State College plant. Thus, it remained substantial enough to make a new deal with Asahi.
What’s the bottom line for Corning on joint ventures? They allow the company to stretch resources and make money work harder. In research and development, for example, Corning spent $110 million last year, 4.6% of revenue and a bit above average for U.S. business. But research joint ventures--notably with Genentech in enzymes and with tiny PCO Inc. of Chatsworth in optics--gave it the research scope of a much larger company. “Their excellent research and development is the best thing they have going for them,” says analyst Wayne Johnson of the New York investment firm H. G. Wellington.
The research effort has allowed the company that sold light-bulb glass to Thomas Edison to develop new products for each new age; Corning’s newest due this year is a glass-ceramic memory disk that ultimately may replace computer floppy disks.
And in optical fiber, against the direct competition of giant AT&T;, it has given Corning market leadership with 55% of the U.S. long-distance phone system and tremendous prospects in the new decade as fiber-optic lines extend to offices and homes. “Not since Alexander Graham Bell himself has there been such opportunity,” Houghton says enthusiastically.
Corning’s lesson for U.S. business? It’s obvious: Joint ventures help those who help themselves.
