Japan's Computer and Communications Industry: The Evolution of Industrial Giants and Global Competitiveness

By Martin Fransman | Go to book overview

2 Origins of the Companies and Controlled Competition

CHAPTER OVERVIEW

The chapter begins by tracing the links between the emergence of the major Japanese IC companies and the development of first telegraph and then telephone services in the country. The particularly important role of the government-owned telegraph factory, established in 1868, is analysed. Some of the major companies were started by individuals who acquired their first knowledge of the IC industry in this factory. From 1889, with the establishment of the first telephone service in Japan, the IC companies diversified their activities into telephone-related equipment.

In 1885 the Ministry of Communications (Teishinshō) was established, assuming responsibility for telegraph and later telephone services from the Ministry of Industry (Kobushō). While the Ministry developed and managed the Japanese communications networks, from the beginning it left the manufacture of the necessary equipment to a small group of privately owned companies. However, a close co-operative relationship evolved between the Ministry and its suppliers, including the transfer of senior personnel from the former to the latter who went on to play important roles in the companies.

Although several Japanese companies produced the telecommunications equipment that was needed, by the 1920s one--NEC, partly owned by Western Electric, the in-house supplier to the Bell System--became increasingly dominant. By the early 1930s, however, although NEC remained in a strong position, its share of the Japanese telecommunications equipment market declined significantly and it faced far stronger competition from the other major suppliers, Oki, Fujitsu, and Hitachi. It is from this time that 'controlled competition' can be said to have become institutionalized in Japan. (See Chapter 1 for an account of the way in which controlled competition works.) In stark contrast, in the USA vertical integration characterized the telecommunications industry, with Western Electric as the only major producer of equipment.

The conjuncture of circumstances that gave birth to controlled competition between the late 1920s and early 1930s is examined next, showing the roles played by depression, financial crisis, and nationalism. While controlled competition was one of the outcomes of this mix of forces, another was a reduction in Japanese dependence on foreign technology and a boost to indigenous technological competences. In analysing this process, particular attention is paid to the changes that occurred in NEC and to the development of automatic switching in the country.

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