Toshiba: Remade in the U.S.A. : Laptop Computer Giant’s Leader Faces New Challenges
His tale is something of a fable in computer circles. In 1985, when Kiichi Hataya became president of Toshiba America Information Systems in Irvine, the first order he received was to shut down the company’s unprofitable American computer line.
But Hataya was able to convince his superiors in Japan that they should delay the closing until he could test the market for the Japanese company’s potential blockbuster product: the laptop computer.
His intuition was right. The laptop market exploded, and Toshiba America became the dominant player in the multibillion-dollar American laptop computer market. The company now holds about 24% of that market.
With yearly sales in excess of $1 billion, Toshiba America has been one of Orange County’s fastest-growing companies. Last year, Hataya said the company hoped to double its work force to more than 3,000 employees by March, 1992.
Now Hataya, 50, faces new challenges. For the first time, Toshiba America cut its local work force, by 5% or about 85 jobs, in January because of the poor economic climate. And as more than 100 companies enter the laptop and notebook computer market pioneered by Toshiba, the company will be hard-pressed to hold onto its No. 1 position in that market.
In addition, Toshiba America is undergoing changes designed to give it a more distinct identity as an American company rather than as a subsidiary of a Japanese company.
For instance, the company in May will launch a telephone switchboard product that was developed entirely by a new research and development arm in Irvine.
Hataya had to overcome skepticism at Toshiba headquarters to convince the parent firm that the product could be made in the United States without compromising quality. He is also pushing to buy more of the company’s computer parts from local vendors.
In a interview two weeks ago, Hataya discussed the notebook computer market and other changes in store for the Toshiba America unit with Times staff writer Dean Takahashi.
Q. What was your vision of the laptop computer when Toshiba introduced its first machine in the United States?
A. When we introduced the laptop, generally speaking people believed it was only one segment of the computer business. We had a strategy for that special segment based on the belief that the laptop would replace the existing desktop in the personal computer area.
Because of that strategy, when we designed our machines we tried never to sacrifice any performance despite the size. We brought the same or better features as the desktop to the laptop. I believe that since the introduction of the laptop, that objective has been met.
Today, more than 30% of the PC market is laptops. These days, we can build 200 megabytes of memory into the laptop’s hard-disk drive; the communications card is built in, and very recently we have a color display for some of the laptops. So the laptop now has the capability to replace the desktop.
The other area is notebook computers, a type of portable computer that fits inside a briefcase. This is mainly marketed to mobile professionals. This notebook product is opening another market for people with little experience in computers: sales automation. I think we talk about PCs we have been using in the office, in the house. . . . Big corporations are introducing sales automations applications that are particular to the notebook computer. Before, salesmen on the road needed to get documents, communicate on the phone or consult documentation to show a product or promotion.
These days, if you have a good notebook computer you can use a telephone line to transmit any kind of data and request information stored elsewhere, such as instructions for a product. The laptop will continue to replace the desktop, but my hope is newer applications will continue to develop.
Q. There has been an explosion of competition in the notebook computer market. Some articles have pointed out that this will pose a major challenge to Toshiba’s traditional hold on the market. Did you expect this competition and what are you doing to defend against it?
A. I think we knew at the last Comdex (computer trade show last November in Las Vegas) that there were more than 100 vendors displaying products in the market when there used to be one or two. So we became aware of the competition.
In some sense, it’s getting difficult. But it works both ways. Because of all the vendors coming in, the industry is growing up. The pie becomes bigger and bigger because of all the vendors coming in, which is good. On the other hand, as you mentioned, there is too much competition out there.
But we have the advantage since we have built a reputation as the leading company in this area. Because of this advantage, we can introduce the leading-edge products.
Q. Are there particular competitors in the notebook market that you see as more significant? For example, everyone is talking about International Business Machines Corp.’s planned notebook computer.
A. Yes. He is a fool who says IBM is nothing. He is wrong. They are expected to announce the new product soon. Again, I think IBM’s participation will have a big impact on this industry. It will mean expanded recognition of the market, but also more difficult competition.
Q. Do you see more competition coming from IBM than anyone else?
A. I think so.
Q. What about Apple Computer? They are working on a portable computer that they say will be out in August.
A. From a marketing standpoint, we compete in the IBM-compatible market. Apple is outside that area.
Q. Some companies like AST Research and Advanced Logic Research feel they have an advantage in the notebook market because, in part, their brand names are well established in the desktop computer field. Do you see those companies as a threat?
A. Those companies have a great advantage in desktops. They have established their names. But in notebooks, our advantage is our concentration. If they want to put their emphasis on both desktops and notebooks, their efforts are diluted. We are not a new company. We are established, we are focusing on one area and we can supply the end-user.
Q. Do you think there will be a shakeout in the notebook computer market this year?
A. No, the market is still expanding. I think it will be 1992 before there is a shakeout.
Q. Toshiba recently laid off 5% of its staff. What are the implications for the company’s stated plan to double the size of its work force by March, 1992?
A. Because of the economic situation and the war in the Gulf, big corporations delayed orders for equipment. Generally speaking, employment for us was increasing at a high rate. Now it’s stabilizing. In the long term, I believe it will grow. We always have been trying to catch up and add more infrastructure to increase our growth. But we want to improve our efficiency. We reduced our work force by 5% at the beginning of January, but our employment is still higher than it was in August. We must be flexible enough to meet the market changes.
Q. Is 3,000 employees by March, 1992, still a realistic goal? A. There may be some delay on that. Our intention is to expand in the future. The delay may be six months to a year.
Q. Looking to the future, what are the next big computer innovations? You’ve mentioned color display for notebooks and wireless communication for PCs.
A. Color displays (for notebook computers) are one advance. The displays are here for the larger machines. It will be three years (before color displays are available) for the notebook machines.
Wireless means communication without the cord. I believe there are two usages of the computer--the display and the network. Connectivity is one of the most important features for PCs. The notebook computer, as I mentioned, brings mobility. The wires limit your mobility. If you can use a computer without the use of wires, it becomes much more useful.
Q. How far away is wireless communication and what is the difficulty in designing it?
A. Toshiba already makes cellular mobile equipment. It must be combined with the computer technology. The difficulty is you must reduce the size of the transmitter to a much smaller size. The wireless transmission must also be free from data errors. That is difficult. I think it will happen sooner than five years.
Q. What kinds of products are you planning outside of the computer industry?
A. As a company, we will continue to focus on information and communications equipment of all kinds. Every area of our business is expanding.
Q. Toshiba is planning to introduce a telephone switchboard system known as a PBX in the United States. Can you tell me about this PBX machine and how it was developed here in the United States?
A. We are now supplying key telephone systems and small PBXs now. We’ve been developing large-sized PBX here in the United States. We are in the final stage of development, and it is the first time we are doing this.
Q. This is your first major system that Toshiba America developed in the United States instead of in Japan. What’s involved in convincing your Japanese superiors that it should be developed here?
A. I think everybody in the United States understands that technology here is good. In Japan there is a different mentality. They don’t trust it. It’s very difficult to convince people that they can share the technology with others. We have been discussing it for a long time with our Tokyo people. I’ve been trying to demonstrate our capability. Psychologically, they know the United States has high technology, but the understanding doesn’t translate into a trust of the technology. We have been trying a long time. Now our Tokyo people, especially in the communications business area, understand our capability and are willing to share with us. The technology here is good, especially in software applications development. They finally realized that we can do some things much better.
Q. Are there more research and development projects going on at Toshiba in the United States?
A. Yes. We have about 150 people in research and development in this country. Certainly, there will be more products. It takes a long time. Two years ago we had about 40 people in research, and so we’ve tripled that number. By the end of 1991, the outcome will begin to show.
Q. Is it your philosophy to have more of the products made and developed in the U.S.?
A. Very soon I expect that our computers will be labeled Made in the U.S.A. We assemble some of the components here and certain models will qualify for that label in July. Local procurement is about 35% right now. We have a plan to have more than half (of the components made in the U.S.) by 1993. If you compare our computers to those made by U.S. companies, it’s hard to tell which has more local content.
Q. What progress do you see toward American management of the company?
A. That is the ultimate goal. Most of the operation is already done by Americans. Today, our No. 2 person is American. Our goal is to replace myself with an American. I don’t know if I can do it. We do need Japanese here, of course, but that is to communicate with Japan and to get information and support from Japan. How to maximize efficiency in the United States and develop strategies for this market, I think is best determined by Americans.
Q. How long do you plan to stay here?
A. I’m asked that many times. Management can always be transferred on short notice. I don’t know. My personal feeling is I’m very lucky to be here because we are rapidly changing the character of this company from a Japanese subsidiary to an autonomous American company. That gives me a tremendous challenge. That is a job I want to complete. My personal feeling is that (I’ll stay) until I accomplish this job or am comfortable with the job I’ve done. My personal motive is that I’m a great lover of the California life. I want to stay longer personally.
Q. Have you noticed a change in Americans’ attitudes toward Toshiba products or Japanese products during the past 10 years?
A. Compared to 10 years ago, there is a big change. American people are very fair. They don’t care so much about product origin. They look for better products, better value. In that sense, American views are very fair. In Japan, if somebody says something is good, they rush to buy it. Here people are more clever. We must always be best in quality. Of course, there is some prejudice.
Q. On that subject, T. Boone Pickens recently gave a local speech that some people in the audience criticized for what they felt were its anti-Japanese overtones. Do you view that kind of anti-Japanese sentiment as one man’s opinion or part of a general backlash against Japan?
A. Generally speaking, I think there is a lot of propaganda. . . . For me, it’s a very sad story because I believe in facts. To some extent there is a certain kind of passion among American people regarding Japanese investments here. If the Japanese make an investment here, it appears in the newspaper. If the English or Germans make the same investment, it never appears. It’s sensationalist.
Q. Do you think this is a problem that is getting worse or making it harder to do business here?
A. I think today the situation is much better than before. I believe there is good understanding by the people. We’re in much better shape. I have certain criticisms of journalists. If some other person outside would judge the Earth by what appears in the newspapers, it would appear to be a terrible world. But for the rest of us, it’s a much more peaceful world. If the news is exaggerated, I make a criticism. For instance, I think the poor economic situation was created by journalists. Actually, I don’t think things are really that bad. What will be the trigger point for a return to good growth? Maybe some journalist will decide it is good. Please report the economy is getting better.
