Chapter10   Sony Corporation of America

Sony Corporation of America

The early days of Sony
Corporation of America.

Sony's decision to shift focus from the domestic to the international market took seed during Morita's 1953 visit to Philips. "Holland resembles Japan in many ways. If a company like Philips can succeed in the international market, there's no reason why Totsuko can't," he thought. Boosted by this convicton, he directed Sony to begin concentrating its energies on producing exports for the international market.

Their initial goal was to build up overseas markets which would yield 50% of their gross sales. Thanks to sales of transistor radios and the diligent marketing efforts of Morita and his staff, this goal became possible within seven years.

Next came step two. Morita took an assertive stand. "Until now we have merely exported overseas. From now on, however, we must go to the heart of the matter. Overseas marketing is an overseas business. I believe that Sony can become stronger by setting up overseas offices." Offices had already been set up in New York, Hong Kong and Zurich for this purpose. A radio factory had also been established in Shannon, Ireland.

Then in February 1960, Sony Corporation of America (SONAM) was established to oversee Sony's marketing activities in the United States by "doing business with Americans like an American company." This was something that no other Japanese electronics corporation had dared to attempt. Many doubted that a company specializing in transistor radios and other electronics products, as opposed to a general trading company, could deal successfully without an agent's assistance.

Morita was well aware of the risks. "In light of Sony's current situation, we may be acting a little prematurely. But a business that doesn't take advantage of its opportunities doesn't deserve to be called an enterprise. We may be overextending ourselves, but the time to act is now. We at Sony don't believe in shying away from the hardship that comes along with a good opportunity, and we ask all our employees to uphold this spirit," explained Morita to his employees.

Sony's maxim---to take advantage of every opportunity that comes along---is underlied by the conviction that the more difficult and trying the work, the sweeter the reward. This concept applies not only to engineering, but to marketing as well, and is typically Sony.

Indeed, as Morita said, Sony had come upon a prime opportunity. In September 1957, before SONAM's establishment, Sony had contracted two companies, Agrod and Superscope, to act as its marketing agents in the U.S. Agrod mainly sold Sony's transistor radios and microphones, and Superscope handled the tape recorder.

Breach of Contract

Superscope was well acquainted with the ins and outs of the business world---after all, it had secured the patent for its profitable wide screen system without outside help. Naturally then, Superscope was a highly demanding agent, but they did a good job selling Sony's tape recorders and microphones.
In September 1955, Sony signed contracts with Superscope and Agrod authorizing them to be Sony's marketing agents. Delmonico International, a respected electronics wholesaler and dealer with a nationwide marketing network, was selected as Sony's distributor.

Initially things worked out well. Thanks to Delmonico's strong sales campaigns, export volume in Sony's transistor radios jumped dramatically. Unfortunately though, good things do not last forever. In time, the relationship began to sour. Delmonico's marketing practices were gradually straying from Morita's long-range goals. Morita wanted to increase sales to all of the U.S., but Delmonico, a New York-based company, was showing comfortable sales and profits in the New York area, and it was not enthusiastic about developing the market further. In addition, Delmonico only accepted products that they knew they could sell and, worse yet, insisted that Sony produce a cheaper radio. That was totally incompatible with Sony's policies. Tensions rose. The last straw, however, was Delmonico's breach of contract.

In January 1960, Morita went to New York accompanied by Masayoshi Suzuki, who had joined Sony the year before. Suzuki had been Morita's classmate in junior high school in Aichi Prefecture and was invited to join Sony and make use of the expertise he had gained working at an import export company.

Soon after their arrival, the Delmonico situation erupted. Delmonico had announced to retailers that they would be handling the TV8-301, tha world's first non-projection transistorized television. They had even announced a specific price and were accepting orders---all without any prior consultation with Morita.

Morita had patiently endured Delmonico's excessive willfulness throughout the relationship, but this was the last straw. Only a month earlier, Sony had announced the completion of the TV8-301 in Japan, but with no mention of a launch date. Naturally then, Sony had not made any announcement in the U.S. and had not even begun to consider a price tag for U.S.-bound sets. Moreover, Delmonico was not authorized under contract to sell televisions, and Morita had not intended to let them handle the TV8-301. He decided it was time to terminate the contract with Delmonico.

514 Broadway

Edward Rosiny, Sony
Corporation of America's
first legal counsel.

Breaking ties with Delmonico was considered a risky gamble. For Morita, however, it was the perfect chance to develop Sony's own direct distribution system in the U.S.

"Bearing Sony's future in mind, I am confident that it is in our best interest to break ties with Delmonico and set up our own marketing structure. This is the only way to triumph against international competition in the U.S. market and to sell our new transistor products as we wish. Even if we fail, the experience will be an invaluable asset to the company. We must establish an overseas subsidiary which, like Sony Shoji, will sell directly to retail stores."

He contacted Tokyo to receive Ibuka's consent. Since government approval was needed to set up the wholly owned subsidiary in New York, officials from Sony head office in Tokyo were sent immediately to the Ministry of Finance for permission to finance the New York venture. After the transfer of $500,000, Sony Corporation of America was established on February 15, 1960.

Morita's next job was bringing Delmonico to the negotiating table. Delmonico had been taken aback by this unexpected turn of events. After hard bargaining by Edward Rosiny, an old friend of Morita's who acted as Sony's lawyer, Delmonico consented to terminate the contract, but demanded compensation. Sony found this totally unreasonable and the amount of compensation unacceptable. Reminding Delmonico of their breach of contract, Morita refused to give in to their demands. At any rate, the matter had to be settled smoothly, as the future of the newly established Sony Corporation of America was at stake. Thanks to Rosiny's tenacity and Morita's resolution, the matter was eventually settled, with final compensation set at a quarter of the original demand.

Akio Morita and his family leaving for the
United States in 1963 in order to expand
Sony's presence.

The remaining problem was moving the 30,000 TR610 radios and other Sony products from Delmonico's warehouse. On a bitterly cold day in late February, Morita, Suzuki, Hiroshi Tada of the New York office, and Columbia University student Kazuya Miyatake, Sony's first scholarship student, used eight large rented trucks to transport the stock from Delmonico's warehouse on Long Island to 514 Broadway, where Sony's warehouse was located. They began at nine in the morning and did not finish unloading until five the next morning. The move was made without sleep or rest, and they even ate on the run.

Sony's office at 514 Broadway was midway between the Empire State Building and Manhattan's downtown area, at that time the center of New York City. It was Broadway, but a far cry from the bright theater and movie district of Times Square. Here, the back alleys were congested with trucks loading and unloading crates destined for the textile, machinery and furniture wholesalers and factories that lined the area.

Looking back, just two and a half years earlier, Morita had used Yamada's home as an office to contact Tokyo. Today, Sony had a full-fledged overseas subsidiary. While the new office was a mere 33 square meters, it was to serve as Sony's springboard to the international market. Morita was too moved for words.

The Factory at Kawara

The Atsugi Plant at its
completion in 1960.

In 1960, transistor output reached one million units a month. In anticipation of further production increases, it was decided that the main plant at Gotenyama alone was too small. The search for a suitable factory site outside Tokyo began.

In essence, the semiconductor plant required four basic prerequisites: expansive land, a plentiful water supply, the presence of as little dust as possible and easy access. In terms of easy access, Tokyo would have been the optimal site, but metropolitan zoning laws placed various restrictions on factory construction.

Local residents and indeed even the Sony personnel searching for plant sites would have been astonished to know that a modern semiconductor plant would be built in this silo-dotted region.

Actually, Atsugi had been considered much earlier, but was later dropped from the list of potential sites. The problem was determining who had jurisdiction over the farm land. The area, which residents called "Kawara," or "river bed," was once the bed of the Sagami River and was planted with wheat, mulberries, peanuts and radishes. Had it been woods, plains or mountains, things would have been simple. Because it was farm land, however, it was subject to restrictions by the Ministry of Agriculture and Forestry which overrode its designation as a site for industrial development.

As prospects for resolving the jurisdiction problem appeared optimistic, Sony officials decided to accept the invitation from the Atsugi municipal authorities. In all, the site encompassed 165,290 square meters, with 115,703 square meters for the factory site and the remaining 49,587 square meters set aside for male and female dormitories. Land was purchased from some 180 landlords, despite the unknown whereabouts of some of them and the resulting time delays in the transactions.

It was a bold investment for Sony, but a good one. At that time, the price paid for this much land in Atsugi would only buy 9,900 square meters in Tokyo.

The next question was the plant's design. It was to have the latest equipment and facilities and an optimum design for a semiconductor plant. Iwama showed the worried designers a photograph of a recently built Texas Instruments semiconductor plant in Dallas, Texas. Designers referred to the photo as Sony designed its new factory.

The designers' biggest concern was dust, which would cripple transistors. Located in the middle of the Sagami plain, Atsugi was exposed to the full force of fierce winter winds which limited visibility to one meter or less. The designers actually walked about in February dust storms to see this for themselves. It was worse than they had dreamed. After taking into account all meteorological and topographical factors, it was decided that windows would open on the north side only. Unlike the main plant, however, the Atsugi plant would only use electrostatic dust collectors rather than conventional dust collectors, which were an expensive undertaking.

On November 1, 1960, the Sony Atsugi plant was completed. Toshiro Sakota was its first plant manager.

At the ceremony commemorating its completion, Ibuka noted "Sony must increase exports and contribute to Japan's economic prosperity. To succeed, we must produce economical, high quality transistorized products for the world market. Atsugi will be the focal point for carrying out this policy. I hope that with the cooperation of all residents, this plan will become a success."