1. All
nuclear reactors under construction across the globe require a huge,
solid-steel vessel to contain the radioactivity. Japan Steel Works is the sole
manufacturer who has the technology to forge the critical $150 million part
from a single 600 ton ingot.
2. Shimano
earns around $1.5 billion a year by supplying 60-70% of the world’s bicycle
gears and brakes.
3. YKK
makes about half of the world’s zip fasteners by value.
4. Nidec
provides about 75% of motors for hard-disk drives in computers.
5. 90%
of the micro-motors used to adjust the rear-view mirror in every car are made
by Mabuchi.
6. TEL
makes 80% of the etchers used in making an LCD panel.
7. Covalent
produces 60% of the containers that hold silicon wafers as they are turned into
computer chips. The company also controls 70% of the markets of carbon brushes
in electric motors.
8. Shin-Etsu
has 50% of the market for the photomask substrate, used to place patterns on
semiconductors. The other major competitors – Covalent, NSG, AGC and Tosoh –
are also from Japan.
9. Murata
has 40% share of capacitors used in many electronic products.
10. Mitsubishi
Chemical commands a near monopoly in red phosphorescent materials used to make
natural white LED light bulbs.
Reasons for the development of chuken kigyo (strong, medium-sized firms):
a) Japanese
are indispensable in the four keys steps in the process of making computer
chips – wafer processing; thin film formation; coating; lithography and
developing; and contact and packaging. Japanese companies lead the markets for
essential components in all four stages and in the manufacture of equipments in
three of them. The quality and reliability of these components and tools are
outstanding.
b) Japanese
companies invest heavily in research and development.
c) These
companies make the bulk of their high-end products in Japan.
d) The
supply chains are also owned by these companies. For example, chip companies
generally grow their own crystal components. Some firms make their own machines
to reduce cost, be independent from suppliers and to have an excellent
understanding of the technology.
e) The
components, tools and materials in which Japanese firms excel are highly
customized. These medium-size Japanese firms work closely with their customers
over many years to gain insight into the current and future needs of the
customers.
f) The
knowledge about the technology is tacit, instead of being codified. It
accumulates by working with colleagues over many years. Lifetime employment in
specialized high-tech sectors enables the development of this tacit knowledge.
g) These
companies disdain mergers and acquisition due to the belief that the strength
of a company is stored in the collective minds of employees rather than the
share price at a given moment.
Potential challenges in the future:
(i)
There is a belief that Japanese firms
are not doing as much as they could to realize the potential of their
technologies. This provides a opening for competitors.
(ii)
Lower margins are limiting the ability
to make high investment in R&D.
(iii)
Some believe that when a narrow market
is dominated by few firms, consolidation is advantages to these leading firms.
However, the inwardness of Japanese management approach restricts this option.
Further, Japanese tax laws also discourage partnership formations.
(iv)
The lack of shareholder pressure could
also act is a detrimental way since there is no market discipline and weak
projects are not terminated quickly.
(v)
Although lifetime employment preserves
knowledge, it also potentially reduced labor mobility and limits the flow of new
creative ideas.
Declining market shares in recent times
–
In 1990, ASML – a Dutch company
manufacturing steppers (tools used to make computer chips) had less than 10% of
the market, while Canon and Nikon dominated the market. Today ASML controls 65%
of the market by devising a decade long strategy (1990 – 2000) of redesigning
the products to make them modular, and by farming our work to specialists (e.g.
Carl Zeiss, a German company, made precision lenses). This allowed ASML to
innovate faster. Further, ASML trained their customer to repair the products by
themselves, whereas Canon and Nikon were much more secretive about the inner
working of their products.
Source: “Invisible but
indispensable,” The Economist, 64-66.