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Maximizing U.S. Interests in Science and Technology Relations with Japan
Market Access Asymmetries
The competitiveness setbacks suffered by the U.S. auto industry and the corresponding gains by Japanese manufacturers during the 1970s and 1980s have been extensively studied and documented.1 One advantage enjoyed by the Japanese auto industry from the early postwar rebuilding period is the asymmetry in market access between Japan and other major autoproducing and auto-consuming countries, most notably the United States. Although Japan committed to deregulate foreign capital and exchange controls upon joining the Organization for Economic Cooperation and Development and the International Monetary Fund in 1964, moves toward capital liberalization did not begin until the late 1960s.2 By this time the U.S. Big Three automakers were very interested in entering the Japanese market, but the Ministry of International Trade and Industry (MITI) and most of the domestic industry argued that the Japanese industry was still too weak and fragmented. Resistance by several second-tier firms to MITI's consolidation plan for the industry led to a partial opening. Chrysler and General Motors took minority equity stakes in Mitsubishi Motors and Isuzu. Ford purchased a minority share in Mazda in the late 1970s.3
These investments did not lead to significant market participation by the Big Three. The Japanese industry had already built considerable competitive strength in its protected domestic market. Before the U.S. companies could devote much effort to penetrating the Japanese market, Japanese autos were making considerable headway in the United States.
Japanese Industry Advantages
The Japanese auto industry's gains during the 1970s and 1980s were made possible by significant advantages it enjoyed over the U.S. industry in three areas.4 The first advantage was in management. General Motors and Ford were (and still are) the largest manufacturing companies in the world. Their competitive environment during the post-World War II period allowed them to focus on the lucrative U.S. market and on each other as competitors. This led to complacency and the development of organizational structures and management styles that were ill suited to the competitive environment that emerged in the U.S. market and globally in the 1970s. Relations between manufacturers and external suppliers, labor and management, and industry and government were at arms length and often adversarial.
During the late 1940s, the Japanese auto industry experienced severe business conditions and fierce labor disputes and nearly collapsed. Survival was ensured by U.S. military procurement of Japanese vehicles during the Korean War. With rapid recovery in the overall economy, Japanese companies were able to step in and meet rising demand, developing vehicle characteristics (such as smaller size) suited to the domestic market. During the industry's period of stress, companies such as Toyota became less vertically integrated and instead made greater use of external, but
For example, the automobile case study that appears in Michael L. Dertouzos, Richard K. Lester, and Robert M. Solow, Made in America: Regaining the Productive Edge (Cambridge, Mass.: The MIT Press, 1989), pp. 171-187.
See Mark Mason, American Multinationals and Japan (Cambridge, Mass.: Harvard University Press, 1992), p. 201.
There is considerable debate over how interested the Big Three were in reentering Japan in the 1940s and 1950s. It is also argued that the U.S. auto industry investments in Japan in the late 1960s and early 1970s were motivated largely by a desire to source small cars from Japan for the U.S. market. Phyllis A. Genther, A History of Japan's Government-Business Relationship: The Passenger Car Industry (Ann Arbor, Mich.: Center for Japanese Studies, 1990).
Much of this section is drawn from the presentation of Michael Smitka at the meeting of the Competitiveness Task Force held January 12-13, 1995.