Q & A : Quake Fallout May Lead Firms to Spread Risks : Mitsubishi Electric’s chief executive for North America foresees no major disruptions in trade operations.

Takashi (Tachi) Kiuchi, chairman and chief executive of Mitsubishi Electric America Inc., said that damage from the recent Kobe earthquake may accelerate a move among Japanese companies to delegate more of their upper-level research and planning operations to their foreign operations.

Trade from Japan probably will not suffer much in the long run as a result of the quake, Kiuchi said, but that will depend on how quickly Kobe’s port facilities can be repaired.

Mitsubishi was founded in Kobe in 1921, but its operations now center on its Tokyo headquarters. Though none of Mitsubishi’s 20,000 employees in Japan were killed in the devastating quake, the parent company’s 11 factories in the area suffered serious damage.

Kiuchi, a descendant of Mitsubishi’s founding family and the only overseas member of the parent company’s board of directors, heads a North American division of 4,500 employees, which generates more than $3 billion in annual sales. The company has about 800 employees in Orange County, split mainly between its Cypress headquarters and a television factory in Santa Ana. The company also sells electronic goods, from semiconductors to elevators and VCRs.

Question: How will businesses react to the earthquake, and what will be the effect on companies, such as yours, with North American divisions?

Answer: This earthquake will have a lot of impact in various aspects, but mainly in the short term. You’ll hear a lot of things about how infrastructure was collapsed and all of that. But I think it will be reconstructed in a short period.

The Northridge quake will have a (motivating) effect on the recovery process. My theory is that, if there is some objective goal to reach, you’ll get to that goal very fast. Everybody who goes back to Japan remembers the quick recovery from Northridge, and I think honestly that there is a lot of competitive spirit that will go into the recovery (in Kobe).

Q: What is the latest information from Mitsubishi’s headquarters?

A: Every day we receive some information about the plants in the faxes and e-mail that are waiting on my desk each morning when I come in. In fact, (one damaged factory near Kobe) is almost in full production. They build utility power-generation equipment there. By (today) I think they will be in full production.

Kobe is the birthplace of the company, it was started there in 1921. The head office is in Tokyo, but we have seven major production facilities in the Kobe area and four research labs.

Q: Will any of the disruptions affect your North American operations?

A: There are some projects for a New York electric utility company, for which things are very tight. The (scheduled completion date) is about nine months away, so we’re talking about how we can meet that target.

Q: What are some of the things you can do to meet that delivery date?

A: There are always production priorities we can adjust or reshuffle, if it is not a mass-produced item.

Long-term, this will have an effect on our plans, not only for Mitsubishi but for all the Japanese companies operating here in the United States. I think until now we’ve always thought of Japan as safe, very stable, and we had a lot of concentration of industries in Japan. Now we realize that Japan isn’t safe, Japan isn’t stable.

Q: But there have been earthquakes in Japan before--this couldn’t have been an overnight realization?

A: Yes, but there hasn’t been an earthquake so centrally located, near an industrial center, since World War II. Now we’re talking about risk management. You have to break up your risks. It’s not only with production, but also for R&D; and engineering too. All those different aspects of our company activities.

Q: Aren’t those the type of operations that most countries want to keep within their own borders?

A: No, (the Japanese) government is actually encouraging the private sector to move those overseas because of trade frictions . . . that happen when those operations aren’t moved. Government is very agreeable to having facilities in the United States, but it’s not the government that will make the move happen.

Economics tells us that if you concentrate on one location, you’re not as effective as you could be. A good example is an elevator factory we have in Nagoya, (Japan). We have divisions in California and Hawaii that sell these products, and we’ve been telling them that we must have this production spread out from this facility. So from that view, (the earthquake) is good news--the wind is with us.

Q: Wouldn’t a cost-benefit analysis of the likelihood of an earthquake tell you the same lessons about where to locate plants?

A: You could do one asking the likelihood of an earthquake in each place in 30 years. But that doesn’t seize you, especially now when we have to globalize our company. If you add the (emotional impact of the quake) to the science of risk management, put those two together, it’s more convincing. The earthquake tells you that anything can happen to us.

Q: The Japanese government admits its response to the quake has been too slow. Is that surprising? And what does this reveal about the relationship of government and business?

A: As you know, our government is a very shaky government. There (have been) several different prime ministers in a year, and the current coalition is very shaky. The current one (Prime Minister Tomiichi Murayama) is a Socialist party figure, and it was by pure luck that he got there. He’s not prepared.

Q: Does that political weakness affect government at all levels?

A: When you have to face this crisis, it’s obvious the guy doesn’t have the leadership capability. I’m not saying some other guy would’ve moved much faster, that’s questionable too. To take six hours for the army to move in (after the quake) is so slow, the army should have moved immediately.

Q: How will the earthquake affect trade relations? There are reports that certain computer component prices worldwide will go up because it will be hard to ship out of Kobe and Osaka. Are there other examples?

A: I don’t know that this will have that much of an immediate effect on trade. If you remember, a few years ago there was a fire at a plant where they made key components for semiconductors (at a Sumitomo Chemical Ltd. resin factory in July, 1993). When they got caught by the fire, everybody panicked, but two months later nobody talked about it. I think that’s what might happen here.

Q: Would a shift in decision-making affect trade relations as well? Wouldn’t the Japanese government have an interest in managing that?

A: Before shifting decision-making, the first step is shifting R&D;, and not too many companies can do that yet. This has nothing to do with government, it has to do with whether we can meet the needs of the foreign market more quickly, whether that market is Thailand or California. We’re moving toward that, but we don’t yet have the capabilities.

Q: You must get a lot of resistance to that idea from central planners, who like the idea of having the prestige departments close by.

A: That’s what I’m getting at. This quake will kill a certain strain of that resistance, though. The wind is with us.

There’s the other factor too, the NIH factor--for Not Invented Here. That means, “If we don’t initiate it, then we don’t want to listen to you.” Our difficulty (here at the U.S. division) is that we have a lot of good ideas here, but when we try to convince our counterparts (in Tokyo) we have this resistance, this NIH.

If you want to sell your products in a more diverse country, you need to take advantage of the talents of the work force there to create those products, products that are more suited for the foreign market.