When the U.S. Partner Bites the Japanese : Commerce: American steelmakers’ and others’ trade complaints against Japanese firms involved in joint ventures with them strike the Japanese as disloyal.
B etrayal.
That is the word being used to describe feelings here about dumping charges that American steelmakers filed last week against their Japanese joint-venture partners.
“Japanese companies went into the United States and helped rebuild the U.S. steel industry in partnership with American companies,” says Kenji Ochi, head of the Ministry of International Trade and Industry’s steel industry section. “For the U.S. companies to turn around and file complaints against those same partners is, from the Japanese point of view, unthinkable.”
It is a sentiment that could become more pronounced as the number of joint ventures grows in tandem with rising trade friction between Japan and the United States.
Over the last decade, Japanese companies have signed an estimated 500 alliances with American companies, of which about a third are joint ventures. The trend has picked up in recent months as Japanese officials, seeking to promote a new vision of U.S.-Japan kyosei, or symbiosis, have encouraged such ventures.
Usually the deals represent the kind of “win-win” situation that everybody loves. Typically, the U.S. company provides the technology and licenses, while the Japanese partner does the manufacturing. For Japanese companies, it means making more efficient use of production facilities, better access to the U.S. market, a broader product line and the opportunity to absorb new technology.
The U.S. partner is attracted by the chance to avoid costly investments in new facilities and the chance to tap Japanese expertise in manufacturing and packaging products.
With production and research costs skyrocketing, “joint ventures are an opportunity to share risk and share costs,” says Roger Mathus, director of the U.S. Semiconductor Industry Assn. office in Tokyo.
But Japanese officials have another, unspoken agenda in promoting joint ventures. The deals are expected to help make the two economies so interdependent that protectionist and “buy American” policies become impractical. In the new global economy, it is sometimes hard to determine which products are really made in America.
And in a nation where the loyalty of business partners is expected to extend far beyond the written contract, Japan hopes that the joint ventures will help win the loyalty of major American corporate partners in trade battles.
Japanese government and industry officials frequently distribute lists of joint ventures between the two nations as evidence of deepening ties.
Sometimes the deals appear to be deliberately exploited for public relations. NEC, which was earlier criticized by its Japanese counterparts for lagging in deals with U.S. chip makers, recently made two strategically timed announcements.
In April, Japan’s public television station reported that NEC and AT&T; were about to establish a new joint venture to distribute chips in Japan. The leak came as U.S. Trade Representative Carla Anderson Hills was in Japan for talks. Although AT&T; said it was premature to comment on talks between the two companies, NHK got Hills on television commenting positively on the deal.
Then, in June, amid tense U.S.-Japan talks on semiconductor trade, NEC scheduled a press conference to announce a new joint venture with Micron.
“The timing of the announcements was coincidence,” says an NEC official, who denied that the company’s recent switch from a go-it-alone policy to one focusing on joint ventures has anything to do with concerns over trade friction.
There is a long history of U.S.-Japan joint ventures. Some early deals, such as Hewlett Packard’s successful joint venture with Yokogawa Electric in computers and instrumentation, have been cited as models of how to penetrate the Japanese market.
More typical of recent joint ventures, however, have been deals that involve arranging for Japanese partners to manufacture high-technology products for export to the United States.
Under Sharp’s agreement with Intel, for example, Sharp will spend about $800 million to build a semiconductor plant to manufacture flash memories--special chips for future portable computers-- to be sold through Intel.
Intel has about 85% of the market for flash memory chips and supplies products from factories in the United States.
Sharp has also signed an agreement with Apple to produce its recently introduced portable palm-top computer, the Newton, and similar products. IBM is expected to announce a deal to develop a high-end printer with Hitachi. Hitachi will manufacture the printer in Japan, a deal estimated to be worth $80 million in annual sales.
In a few instances, American companies have established joint ventures to learn from Japan. General Motors’ venture to build cars with Toyota in Fremont, Calif., is an example. IBM’s decision to build a joint-venture factory to produce liquid crystal screens for laptops in Japan is another.
Critics say the problem with such deals is that, unlike their Japanese counterparts, American companies invariably fail to follow up and do the homework to learn from the ventures. Although IBM was initially planning to build an LCD plant in the United States identical to its Japanese plant, effectively importing Japanese LCD technology, the company now says it has no plans to do so.
Consequently, the net result of most joint ventures is that Japan increases its manufacturing base in high technology--and absorbs new technology--while U.S. companies avoid making the hard decisions to invest in U.S. production. U.S. high-tech companies end up creating more jobs overseas than they do at home.
But if the joint ventures do not always promote American interests, neither do they necessarily serve Japan’s goal of reducing trade friction.
The best example is Chrysler Chairman Lee A. Iacocca’s harsh criticism of Japanese auto makers at a time when Chrysler owned a large stake in Mitsubishi Motors and depended on the Japanese company for many of its cars.
The steel industry is another case in point.
Japanese steel companies, which spent an estimated $4 billion over the last decade buying into America’s top steelmakers and helping them rebuild their production facilities, had assumed that their American partners would take their side.
When NKK announced May 30 that it had agreed to form a joint venture with Bethlehem Steel to build a $100-million plant to produce galvanized steel, the Japanese press reported that the last of the major U.S. steel companies had now cast its lot with the Japanese. The fiercely independent Bethlehem, which had filed a dumping complaint against NKK and other steelmakers earlier in the month, was now ostensibly less likely to cause trouble.
An NKK official says there was no relationship between Bethlehem Steel’s dumping complaint and NKK’s decision to form a joint venture with the company. However, he says, the latest filing of dumping complaints was “unfortunate” in view of the Japanese industry’s long cooperation with U.S. steelmakers.
Japanese semiconductor makers could soon find that the joint ventures they have been hastily creating with their American counterparts could similarly fail to ease trade frictions.
“Joint ventures are not a substitute for U.S. market share in Japan,” says Mathus, the U.S. Semiconductor Industry Assn. official in Tokyo. “To survive, America has to keep its manufacturing capability.”
Venturing Forward
A sampling of recent joint ventures between American and Japanese firms:
Companies Venture IBM-Hitachi Develop and produce high-end printers Intel-Sharp Produce flash memory semiconductors Apple-Sharp Develop and produce consumer products Hughes-JVC Develop and produce video projectors NKK-Bethlehem Steel Produce galvanized steel NEC-IBM Distribute semiconductors in Japan
