U.S. Firm Shows How to Enter Japan Market : Trade: James Morgan’s Applied Materials is succeeding where many firms have failed.

Executives at Applied Materials, the Santa Clara-based producer of semiconductor manufacturing equipment, didn’t really appreciate the value of keeping tabs on their market in Japan until they were tipped that Japanese competitors were about to make industry-shaking equipment changes.

“We didn’t believe it,” said company spokesman Tom Hayes, recalling the 1983 tip from Applied’s Japan-based subsidiary. “There’s been a ‘we-invent-it-first’ syndrome in America. It’s American hubris at its best. The technology change hadn’t occurred here, so we didn’t believe that it was about to happen in Japan.”

The Japanese competitors did indeed make major product alterations in 1983, prompting Applied Materials to make the same changes in 1984. The changes became part of a new global industry standard by 1985. Many U.S. firms in the industry that failed to promptly adopt similar changes have lost market share or are now out of business.

Applied Materials Chairman James Morgan likes to cite that industry watershed when driving home his points about the value of establishing a Japan-based sales operation that monitors changes in the Japanese market. Morgan has become a leading proponent of American corporate involvement in Japan.

For example, he has used his membership on the National Advisory Committee on Semiconductors--a group that advises the White House and Congress on high technology issues--to promote the notion that U.S. firms must make greater efforts to penetrate Japanase markets.

American corporate reluctance to more aggressively pursue Asian sales is a subject Morgan and other advisory committee members have discussed. And, in speeches and interviews across the country, Morgan has urged American industry to spend the time, money and resources to develop the expertise, business relationships and product modifications needed to succeed in Japan.

“Japan is the world’s most difficult market for any foreign firm,” Morgan said. “But formal trade barriers in Japan are beginning to disappear and are no longer the leading impediment to success. The bigger problem is commitment. Too many American firms are not sufficiently committed to meeting the demands of the Japanese market. That has to change if we are to continue to compete on a global scale.”

Morgan and his son, J. Jeffrey Morgan, have advanced that message in their recently published book, “Cracking the Japanese Market.” In the book, the Morgans argue that U.S. businesses can become more competitive everywhere by learning to sell to the Japanese.

“Japanese consumers have more stringent definitions of quality,” the elder Morgan said. “American companies need to learn to compete in Japan because if you can meet those high standards and sell to the Japanese, you can sell anywhere.”

When James Morgan argues that U.S. firms can succeed in Japan, he speaks from experience. Morgan’s Applied Materials generated 1991 revenue of $258 million--40% of its total sales--from its marketing operations in Japan. Since 1988, Applied’s sales in Japan have nearly doubled.

Applied’s record in Japan is all the more impressive because the company is succeeding in a field that is now dominated by Japanese firms. Applied and its competitors manufacture the machinery that produces microchips for the electronic systems of a wide range of products--from computers to the computerized components of goods as disparate as automobiles and toasters. Only 10 years ago, U.S. companies had 47% and Japanese firms had 21% of the worldwide market for these machines. Today, Japanese companies have 44%, and American firms have 32%.

The Japanese producers are selling more of the chip-making machines largely because demand for circuit-bearing memory devices has grown more rapidly in Japan, said Krishna Shankar, a senior analyst at Dataquest, a San Jose-based firm that researches high-technology industries.

Indeed, the business of making semiconductor manufacturing equipment has experienced a major shake-up since 1983. One decade ago, four of the world’s top 10 producers of semiconductor manufacturing equipment were U.S. firms. Today, Applied Materials--expected to rank second with sales of $638.6 million and earnings of $26.2 million in 1991--is the only U.S. firm among the industry’s five top revenue-makers.

Shankar said many U.S. producers of semiconductor manufacturing devices have lost market share or failed altogether because they failed to “globalize” their sales in the 1980s.

“Applied Materials is one of the American success stories in this industry,” Shankar said. “They succeeded by winning a good size of the Japanese market and by adopting innovations that have kept their products on the leading edge of technology.”