Chapter19 Non-Japanese Directors Join the Board

Non-Japanese Directors Join the Board

The localization of management that had begun in the 1970s was further pursued in the 1980s. Company presidents were hired locally, and local management was actively promoted. For example, negotiations with local governments to construct new plants were better left in the hands of the local management. This approach also enhanced the acceptance of the company by local communities. Despite the aggressive implementation of these efforts, Morita and Ohga never strayed from the concept that Sony was a unified whole. Both men facilitated meetings between overseas subsidiaries and Tokyo management through the International Top Management meeting, and they often traveled to the subsidiaries themselves. Their goal was to establish a global identity for Sony and they religiously stuck to Sony's fundamental principles whenever possible. Sony's top management often met with employees in Japan and abroad to speak of the Sony philosophy. They enjoyed being on close terms with Sony employees and their families worldwide.

In June 1989, two non-Japanese employees joined Sony's board of directors. In Japan, it is still rare for a company to have non-Japanese executives from their overseas subsidiaries join the board of the parent company. The two appointees were Michael P. Schulhof, then the Vice Chairman of Sony Corporation of America who had been instrumental in the acquisition of music and film companies in the U.S., and Jakob J. Schmuckli, who was successfully leading Sony Europe. The aim of Morita and Ohga was to promote key international management and to demonstrate to other non-Japanese Sony management that they were just as important to Sony as their Japanese counterparts. This was the completion of another step in the globalization of Sony's personnel strategy.

Globalization of R&D Operations

The Exterior of the Research Laboratories in San
Jose, California"

"In May 1989, the Advanced Video Technology Center (AVTC), the development base for HDTV in the United States, was established in San Jose, California. At the opening ceremony, Morita said, "We believe it is necessary to develop products locally in order to meet the needs and requirements of the local market. Also, if we could transfer local specialties such as digital technologies from the United Kingdom, or graphics and special effects technologies from the United States to other regions, we would realize a global synergy in R&D."

The message behind Morita's speech was that "global localization," as the new guiding principle for the future of Sony, would be applied to R&D and include technology transfers from one regional R&D center to another. Moreover, like marketing and manufacturing, R&D would be conducted close to Sony's end markets.

For many years, Sony has been conducting technological development abroad for broadcast and industrial applications. The first such center was Sony Broadcast Ltd. (SBC), established in the United Kingdom in 1978. Since then, SBC has been conducting sales and marketing of broadcast equipment, while pursuing broadcast systems design and R&D projects. The SBC R&D team successfully developed the first broadcast-use digital component VTR through a joint development project with Atsugi-based researchers. However, in the area of home-use products, Sony did not establish overseas R&D operations until several years later.

In the early 1990s, global localization of R&D continued in all product areas. By then Sony had over twenty R&D centers outside Japan. Yet despite the fact that overseas sales accounted for 70% of Sony's consolidated sales, overseas production still amounted to only 30% of the total. R&D localization still had a long way to go.

In the 1990s, Sony was still guided by the principles of conducting product R&D close to markets while fully utilizing the technological strengths of each region It also continued to see the need to establish R&D operations abroad in order to minimize the effect of exchange rate fluctuations.

Telecommunications infrastructure and software development was more advanced overseas than in Japan. As Sony expanded from its traditional AV realm into such areas as computers and telecommunications, the pursuit of R&D activities overseas became more and more advantageous. The U.S. also boasted many talented engineers, particularly in the field of software development, and was a substantial resource base for technology licensing agreements with high-tech companies.

Changing times triggered shifts in demand, and Sony needed to establish a system that enabled it to increase efficiency by internally coordinating R&D efforts around the world. To this end, it needed first to construct R&D bases for regional coordination, and to appoint a supervisor to oversee these bases. In April 1994, the Research Laboratories were founded in San Jose, California. Kenji Hori, an instrumental player in Sony's development, was appointed Chief Technology Officer (CTO).

Fou Core Market and Emerging Markets

In Fiscal Year 1995, Sony achieved a 47% overseas production rate on a consolidated basis, with indications of further increases in this direction. Overseas production had expanded to include a wide variety of products, including color televisions, personal headphone stereos, CD players, etc. In Japan, the U.S., Europe, and Asia, a large percentage of the components and parts were being procured locally, enabling each region to operate self-sufficiently. In addition, logistics and service activities were being implemented in step with global localization efforts worldwide.

In coordination with Sony Logistics Corp., which was opening offices throughout the world, the International Logistics Group at Sony head office was established in 1985. This group began introducing an innovative strategy aimed at achieving faster, cheaper and safer international logistics operations in the wake of the dissolution of the Soviet Union and the lifting of COCOM (Coordinating Committee for Export Control to Communist Area) and other similar trade restrictions. In Japan, from 1993, Sony introduced direct vanning, a system whereby products are shipped for export directly from factories, without first going to a warehouse. This innovation resulted in large reductions in cost and time. Sony also changed the general perception of treating logistics as a part of sales by now treating it as a separate function in itself. This shift in perception allowed the company to set up a system for comprehensive monitoring of the flow of materials and goods from the production stage through shipment of finished goods, thus increasing efficiency. This system began in 1994 in Japan and was later applied in Asia.

In the 1990s, Sony decided to integrate the management and supply of spare parts under a comprehensive new system. The company began by establishing World Repair Parts Centers (WRPCs) first in Japan in 1992, then in Singapore for the Asian region and in Belgium for the European region in 1995, followed in 1996 with a center in Kansas City for the North American region. These four WRPCs exchange parts and service information between themselves and supply Sony companies in their respective region. The establishment of the WRPCs has contributed to the creation of a universal after-sales system that supports the service departments of sales companies in each region.

In addition to Sony's four core markets, there are new and emerging markets. As the AV markets in Japan, the United States, and Europe became saturated in the 1980s, the ASEAN(Association of South-East Asian Nations) markets were seen as the rising stars. And in the 1990s, new stars are beginning to emerge in China, India, Vietnam, and the countries of South America.

Sony enjoyed a good lead on the competition in Europe and the United States, but in new and emerging markets, Sony is knocking on doors at the same time as the competition. Sony's first priority in these markets is to establish the Sony brand. Sales and service operations will follow, and eventually local production and R&D will lead to the development of self contained businesses in each country. The global localization know-how that Sony has been accumulating since the 1960s is thus being tested in these new markets.

Becoming Good Corporation Citizens

When Masaaki Morita went to the United States in 1987, he decided to restructure Sony Corporation of America's operations to enhance the company's capabilities, including manufacturing and R&D, and make the company contribute to U.S. export efforts. "At the same time, he worked to persuade the staff of SONAM to work for "the company community, and country."

With the opening of the San Diego plant in 1972, Sony created the Sony Foundation of Science and Education with the goal of becoming a respected corporate citizen in the United States. The Sony Foundation began to promote education, health-care, and community activities as well as providing support and assistance to minority groups. It was the first such welfare-oriented foundation to be established in the United States by a Japanese company. In 1987, Sony founded the Innovator's Awards, an annual ceremony to award aspiring Afro-American artists who have shown outstanding talent in music and the visual arts. In his opening speech at the first ceremony held in 1988, music producer Quincy Jones stated that it was encouraging that a large firm like Sony was providing Afro-American artists a chance to be introduced to the entire nation.

Sony has also provided assistance for university education. In 1989, the University of Illinois announced it would create a Bardeen Chair in commemoration of the work of the 1972 Nobel Prize winner for physics, John Bardeen. Upon hearing the news, Sony volunteered to provide financial assistance for the project. Sony wanted to honor a scientist who had made the invention of the transistor possible, an event that had changed Sony's history, and to provide support to further physics research efforts at the University of Illinois.

In 1990, when Sony Corporation of America celebrated its 30th anniversary, Sony decided to step up contributions aimed at encouraging the education of young men and women. That was the beginning of the Sony Student Program Abroad (SSPA), under which 50 U. S. high school students are brought to Japan each year and taken on a tour of Sony's manufacturing facilities, enabling them to get a first hand glimpse of Japan's high-tech industries. In addition, students are given an opportunity to experience Japanese culture through home stays with Japanese families. To date, the SSPA program has given a total of 350 students the chance to visit Japan.
Europe boasts a rich history and a long-standing tradition of artistic and cultural achievements, and Sony has been concentrating on providing whatever assistance it can in these fields. Specifically, Sony has provided financial assistance for the restoration of the Leonardo da Vinci statue in Milan and for additional construction at the Louvre Museum of Art in Paris among other projects.

In the early 1990s, Sony also stepped up such activities in Asia. In Beijing, Sony initiated the scholarship program for university students, and in Singapore, SPEC participated in local charity fundraising activities. Sony was the first Japanese company in Singapore to be awarded the Outstanding Corporate Citizen Award by the Singaporean government.

In Japan, Ibuka had created the Sony Science Education Foundation in the 1950s, now known as the Sony Science Education Promotion Fund, to help foster the study of science among children. This activity was transferred to the Sony Foundation for Science and Education, established in 1972. Under the current management of Hisanaga Shimazu, the foundation reached its fortieth anniversary in 1995. A total of five-thousand schools in Japan have so far received donations in terms of funds and equipment. In 1984, Sony established the Sony Music Foundation to sponsor a variety of programs in order to popularize the appreciation of music and develop young talented artists.

In the 1980s and early 1990s, Sony eagerly promoted its global localization program, spreading its operations to Europe, the United States, and Asia. Through the establishment of these foundations, Sony and Sony subsidiaries have come to respect and understand the traditions, cultures and problems that confront the local communities where they operate. Sony has continuously strived to become a good corporate citizen in these communities, while promoting international communication and cooperation that spans many borders.