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Based on its longtime vision of "C&C," the integration of computers and communications, NEC Corporation has gained top-five worldwide positions in computer chips, computers, and telecommunications equipment. Like other manufacturers of telephone equipment, NEC seized the opportunity to combine its background in communications with a new and largely self-achieved position in computer technology. Nearly 96 percent of NEC's sales are derived from its C&C operations, which are segmented into communications systems and equipment (which comprise about 28 percent of overall sales), computers and industrial electronic systems (which comprise about 45 percent of sales), and electron devices (which comprise about 23 percent of sales). The other NEC operations that are responsible for the remaining 4 percent of sales include color televisions, VCRs, video game units, and home appliances. NEC and its subsidiaries and affiliates manage 62 factories in Japan and 45 plants in 19 other countries.
Early History Involved Western Electric Company
The Nippon Electric Company, Limited, as NEC Corporation was originally known, was first organized in 1898 as a limited partnership between Japanese investors and the Western Electric Company. Western Electric recognized that Japan, which was undergoing an ambitious industrialization, would soon be building a telephone network. With a solid monopoly in North America as the manufacturing arm of the Bell system, Western Electric sought to establish a strong market presence in Japan, as it had done in Europe. NEC went public the following year, with Western Electric a 54 percent owner. In need of a plant, NEC took over the Miyoshi Electrical Manufacturing Company in central Tokyo.
Under the management of Kunihiko Iwadare and with substantial direction from Western Electric, NEC was at first little more than a distributor of imported telephone equipment from Western Electric and General Electric. Iwadare, however, set NEC to producing magneto-type telephone sets and secured substantial orders from the Ministry of Communications for the government-sponsored telephone-network-expansion program. With steadily increasing, and guaranteed, business from the government, NEC was able to plan further expansion. In September 1900 NEC purchased from Mitsui a site at Mita Shikokumachi, where a second NEC factory was completed in December 1902.
In an attempt to heighten NEC's competitiveness with rival Oki Shokai, Iwadare ordered his apprentices at Western Electric to study that company's accounting and production-control systems. Takeshiro Maeda, a former Ministry of Communications official, recommended that NEC emphasize the consumer market, since he regarded the government sales as uncompetitive and limited. Still, government sales were the company's major vehicle for expansion, particularly with Japan's expansion into Manchuria after the 1904--05 Russo-Japanese War.
Japan's Ministry of Communications engineered an aggressive telecommunications program, linking the islands of Japan with commercial, military, and government offices in Korea and Manchuria. As was Bell in the United States, NEC was permitted a "natural," though imperfect, monopoly over cable communications in Japan and its territories. NEC opened offices in Seoul in 1908 and Port Arthur (now Lü⁄un), China, in 1909.
A serious economic recession in Japan in 1913 forced the government to retrench sponsorship of its second telephone expansion program. Struggling to survive, NEC quickly turned back to importing--this time of such household appliances as the electric fan, a device never seen before in Japan. As quickly as it had fallen, the Japanese economy recovered in 1916, and the expansion program was placed back on schedule. Intelligent planning effectively insulated NEC from the effects of a second serious recession in 1922; NEC even continued to grow during that time.
Relationship with Sumitomo Began in 1920s
Around this time, Western Electric's international division wanted to create a joint venture with NEC to produce electrical cables. NEC, however, lacked the industrial capacity to be an equal partner, and recommended the inclusion of a third party, Sumitomo Densen Seizosho, the cable-manufacturing division of the Sumitomo group. A three-way agreement was concluded, marking the beginning of an important role for Sumitomo in NEC's operations.
On September 1, 1923, a violent earthquake severely damaged Tokyo and Yokohama, killing 140,000 people and leaving 3.4 million homeless. The Great Kanto Earthquake also destroyed four NEC factories and 80,000 telephone sets. Still, the government maintained its commitment to a modern telephone network and supported NEC's development of automatic switching devices.
NEC began to work on radios and transmitting devices in 1924. As with the telephone project, the Japanese government sponsored the establishment of a radio network, the Nippon Hoso Kyokai, which began operation with Western Electric equipment from NEC. By May 1930, however, NEC had built its own transmitter, a 500-watt station at Okayama.
In 1925 American Telephone & Telegraph sold International Western Electric to International Telephone & Telegraph, which renamed the division International Standard Electric (ISE). Partially as a result, Yasujiro Niwa, a director who had joined NEC in 1924, felt NEC should lessen its dependence on technologies developed by foreign affiliates. In order to strengthen NEC's research and development, Niwa inaugurated a policy of recruiting the best graduates from top universities. By 1928 NEC engineers had completed their own wirephoto device.
The Japanese economy, which had been in a slump since 1927, fell into crisis after the Wall Street crash of 1929. With a rapidly contracting economy, the government was forced year after year to scale back its telecommunications projects. And while it restricted imports of electrical equipment, the government also encouraged greater competition in the domestic market. Decreased subsidization and a shrinking market share reversed many of NEC's gains during the previous decade.
The deployment of Japanese troops in Manchuria in 1931 created a strong wave of nationalism in Japan. Legislation was passed that forced ISE to transfer about 15 percent of its ownership in NEC to Sumitomo Densen. Under the directorship of Sumitomo's Takesaburo Akiyama (Iwadare had retired in 1929), NEC began to work more closely with the Japanese military. A right-wing officers corps was at the time successfully engineering a rise to power and diverting money to military and industrial projects, particularly after Japan's declaration of war against China in 1937. NEC's sales grew by seven times between 1931 and 1937, and by 1938 the company's Mita and Tamagawa plants had been placed under military control.
Under pressure from the militarists, ISE was obliged to transfer a second block of NEC shares to Sumitomo; by 1941, ISE's stake had fallen to 19.7 percent. Later that year, however, when Japan went to war against the Allied powers, ISE's remaining share of NEC was confiscated as enemy property.
During the war, NEC worked on microwave communications and radar and sonar systems for the army and navy. The company took control of its prewar Chinese affiliate, China Electric, as well as a Javanese radio-research facility belonging to the Dutch East Indies Post, Telegraph and Telephone Service. In February 1943, Sumitomo took full control of NEC and renamed it Sumitomo Communication Industries. The newly named company's production centers were removed to 15 different locations to minimize damage from American bombings. Despite this, Sumitomo Communication's major plants at Ueno, Okayama, and Tamagawa were destroyed during the spring of 1945; by the end of the war in August, the company had ceased production altogether.
Struggled to Recover Following World War II
The Allied occupation authority ordered the dissolution of Japan's giant zaibatsu (conglomerate) enterprises such as Sumitomo in November that year. Sumitomo Communications elected to readopt the name Nippon Electric, and ownership of the company reverted to a government liquidation corporation. At the same time, the authority ordered a purge of industrialists who had cooperated with the military during the war, and Takeshi Kajii, wartime president of NEC, was removed from the company.
NEC's new president, Toshihide Watanabe, faced the nearly impossible task of rehabilitating a company paralyzed by war damage, with 27,000 employees and no demand for its products. Although it was helped by the mass resignation of 12,000 workers, NEC was soon constrained by new labor legislation sponsored by the occupation authority. This legislation resulted in the formation of a powerful labor union that frequently came into conflict with NEC management. And although NEC was able to open its major factories by January 1946, workers demanding higher wages went on strike for 45 days only 18 months later.
The Japanese government helped NEC and other companies to remain viable through the award of public-works projects. Uneasy about becoming dependent on these programs, however, Watanabe ordered the reapplication of NEC's military technologies for commercial use. Submarine sonar equipment was thus converted into fish detectors, and military two-way radios were redesigned into all-band commercial radio receivers.
Still, NEC fell drastically short of its postwar recovery goals. In April 1949 the company closed its Ogaki, Seto, and Takasaki plants and its laboratory at Ikuta, and laid off 2,700 employees. The union responded by striking, yielding only after 106 days.
Next on Watanabe's agenda was the establishment of patent protection for NEC's technologies. During the war, all patented designs had become a "common national asset"--in the public domain. Eager to reestablish its link with ISE, NEC needed first to ensure that both companies' technologies would be legally protected. This accomplished, NEC and ISE signed new cooperative agreements in July 1950.
Diversified and Expanded Internationally in the 1950s and 1960s
With Japan's new strategic importance in light of the Korean War, and with the advent of commercial radio broadcasting and subsequent telephone expansions, NEC had several new opportunities for growth. The company made great progress in television and microwave communication technologies and in 1953 created a separate consumer-appliance subsidiary called the New Nippon Electric Company. The following year NEC entered the computer field. By 1956 it had diversified so successfully that a major reorganization became necessary and additional plant space in Sagamihara and Fuchu was put on line. NEC also established foreign offices in Taiwan, India, and Thailand in 1961.
Watanabe, believing that NEC should more aggressively establish an international reputation, opened an office in the United States in 1963. In addition, the company's logo was changed, dropping the simple igeta diamond and "NEC" for a more distinctive script. In November of the following year, Watanabe resigned as president and became chairman of the board.
The company's new president, Koji Kobayashi, took office with the realization that because the Japanese telephone market would soon become saturated, NEC would have to diversify more aggressively into new and peripheral electronics product lines to maintain its high growth rate. In preparation for this, he introduced modern management methods, including a zero-defects quality-control policy, a concept borrowed from the Martin Aircraft Company. Over the next two years, Kobayashi split NEC's five divisions into 14, paving the way for a more decentralized management system that gave individual division heads greater autonomy and responsibility.
With the continued introduction of more advanced television-broadcasting equipment and telephone switching devices, and taking advantage of the stronger position Watanabe and Kobayashi had created, NEC opened factories in Mexico and Brazil in 1968, Australia in 1969, and Korea in 1970. Affiliates were opened in Iran in 1971 and Malaysia in 1973.
With a diminishing need for technical-assistance programs, NEC moved toward greater independence from ITT. That company's interest in NEC (held through ISE) was reduced to 9.3 percent by 1970, and eliminated completely by 1978. Similarly, NEC shares retained after the war by Sumitomo-affiliated companies were gradually sold off, an action that reduced the Sumitomo group's interest in NEC from 38 percent in 1961 to 28 percent in 1982.
NEC's competitive advantage in labor costs eroded continually from the mid-1960s, when worker scarcity became apparent, until the early 1980s. This, together with President Richard Nixon's decision to remove the U.S. dollar from the gold standard in 1971 and the effects of the Arab oil embargo of 1973, profoundly compromised NEC's competitive standing. The company was forced into a seven-month retrenchment program in 1974, losing precious momentum in its competition with European and American firms.
Pursuit of C&C Vision Began in Late 1970s
In an effort to promote Japanese electronics companies, the Japanese government pushed through a series of partnership agreements among the Big Six computer makers: NEC, Fujitsu, Hitachi, Mitsubishi, Oki, and Toshiba. NEC and Toshiba formed a joint venture, which gave both companies an opportunity to pool their resources and eliminate redundant research. However, a subsequent attempt by NEC to enter the personal computer market failed miserably. Still, NEC, choosing to work with Honeywell instead of building IBM compatibles, invested heavily in its computer operations.
Later in the 1970s, NEC's computer activities suffered from the fall of Honeywell's computer fortunes. NEC recovered by relying more on its ability to develop systems in-house. The company was further spurred on by the visionary Kobayashi's concept of "C&C," his prediction of the future integration of computers and communications. This prescient vision, which was initially scoffed at, was first announced by NEC at INTELCOM 77. By 1984 NEC had sold more than one million personal computers in Japan. By 1990 the company, whose Japanese personal computers used a proprietary NEC operating system, held a commanding 56 percent share of the Japanese market, as well as a top five position in the United States, where it sold PC clones.
Kobayashi, in the meantime, was promoted to chairman and CEO, and succeeded as president first by Tadao Tanaka in 1976, and then Tadahiro Sekimoto in 1980. Under Kobayashi and Tanaka, NEC tripled its sales volume in the 10 years to 1980. A greater proportion of those sales than ever before was derived from foreign markets, and between 1981 and 1983 NEC's stock was listed on several European stock exchanges. In 1982 an NEC plant in Scotland began to manufacture memory devices, then in 1987 NEC Technologies (UK) Ltd. was established in the United Kingdom to manufacture printers and other products for the European market. In 1984 NEC, Honeywell, and France's Groupe Bull entered into an agreement involving the manufacture and distribution of NEC mainframe computers; the deal also provided for cross-licensing of patents and copyrights among the three companies.
Meanwhile, in the United States NEC formed NEC Electronics, Inc. in 1981 to be the company's manufacturing and marketing arm for semiconductors in the United States. This subsidiary in 1984 opened a $100 million plant in Roseville, California, to manufacture electron devices. In 1989 another U.S. subsidiary, NEC Technologies, Inc., was established to handle the company's computer peripheral operations in the United States.
Increased International Profile in the 1990s
By 1989, NEC's sales had reached ¥3.13 trillion (US$21.3 billion). The company's focus on C&C had led it to top five positions in computer chips, computers, and telecommunications equipment. Like IBM, NEC was also vertically integrated, which added to its strength. Although NEC, like other Japanese electronics computers, suffered from the Japanese recession and strong yen of the early 1990s and from increased competition in Japan from U.S. companies, its aggressive pursuit of overseas opportunities helped the company maintain its leading and varied positions.
In Europe, NEC began selling its IBM-compatible PowerMate line in 1991. In late 1993 the relationship between NEC and Groupe Bull was strengthened with an additional NEC investment of ¥7 billion (US$64.5 million) in the troubled state-owned computer manufacturer. By 1996 NEC had a 17 percent stake in Groupe Bull. In 1995 NEC spent US$170 million to gain a 19.9 percent stake in Packard Bell Electronics, Inc., the leading U.S. marketer of home computers. In February 1996, NEC, Groupe Bull, and Packard Bell entered into a complex three-way arrangement. NEC invested an additional US$283 million in Packard Bell, while Packard Bell acquired the assets of Groupe Bull's PC subsidiary, Zenith Data Systems. In June of that same year, NEC and Packard Bell merged their PC businesses into a new firm called Packard Bell NEC Inc., with NEC investing another US$300 million for a larger stake in Packard Bell. Packard Bell NEC immediately became the world's fourth-largest PC maker, trailing only Compaq, IBM, and Apple. In July 1997 NEC announced that it would invest US$285 million more in Packard Bell NEC, giving NEC near control over the company.
As the 1990s progressed, NEC increasingly looked to parts of Asia outside Japan for manufacturing and sales opportunities, particularly in semiconductors, transmission systems, cellular phones, and PCs. During fiscal 1996, for example, NEC entered into several joint ventures in China for the production and marketing of PBXs, PCs, and digital microwave communications systems and in Indonesia for the manufacture of semiconductors. In May 1997 NEC took a 30 percent stake in a US$1 billion joint venture to construct the largest semiconductor factory in China.
In 1994 NEC announced the development of the SX-4 series of supercomputers, touted as the world's fastest. U.S.-based competitor Cray Research Inc. later filed a complaint with the U.S. Commerce Department accusing NEC of dumping the series in the U.S. market. The Commerce Department in March 1997 ruled in Cray Research's favor and imposed a 454 percent tariff on NEC's supercomputers. NEC then filed an appeal with the U.S. Court of International Trade.
By 1996, Sekimoto had become chairman of NEC and Hisashi Kaneko was serving as president (Kobayashi died in 1996, when he still held the post of honorary chairman). During the 1990s, these executives had led NEC to increase the share of its sales derived outside Japan from 20 percent in 1990 to 28 percent in 1996. Nonetheless, NEC also kept its sights on its home market; NEC's share of the domestic PC market had fallen to about 50 percent by 1996, leading to a plan to sell IBM-compatible computers in Japan for the first time, which was announced by NEC in 1997. As a new century loomed, an aggressive NEC was clearly not about to abandon any of its hard-won leading positions without a fight.
Principal Subsidiaries: NEC Home Electronics, Ltd.; NEC Kansai, Ltd.; NEC Personal Systems, Ltd.; NEC Kyushu, Ltd.; NEC Field Service, Ltd.; NEC Shizuoka, Ltd.; NEC Logistics, Ltd.; NEC Gunma, Ltd.; NEC Nagano, Ltd.; NEC Saitama, Ltd.; NEC System Integration & Construction, Ltd.; Japan Aviation Electronics Industry, Limited; Ando Electric Company, Limited; Nippon Avionics Co., Ltd.; NEC Electronics Inc. (U.S.A.); NEC America, Inc. (U.S.A.); NEC Technologies, Inc. (U.S.A.).
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