Ibm Turns Tougher In TokyoRobert Neff
Japan's economy is slumping, its companies are slashing spending, its computer makers are suffering huge profit declines. And IBM Japan Ltd.? The $10.2 billion subsidiary reports only yearly results, but officials there say 1992's first half showed gains in both sales and earnings--a big change from recent troubled years.
So, is IBM's largest overseas subsidiary finally turning the corner? Sort of. "IBMJ is taking steps in the right direction," says Yuji Ogino, president of market researcher IDC Japan Ltd. He reckons that the subsidiary's sales are up 4% so far this year, behind the 6.4% gain for all of IBM. And IBMJ profits, while more difficult to estimate, are growing once again, he figures. "It will take them two or three years to really turn around," Ogino says.
Any upward trend at IBM Japan is important, because what's good for the subsidiary is vital to IBM as a whole. It accounts for 11% of IBM's global sales and serves as an outpost in one of the world's most fertile and competitive markets. IBMJ is responsible for developing and manufacturing laptop computers and small disk drives for IBM worldwide. It's also a test bed for new strategies, including how to sell services and form alliances for key technologies: IBMJ helped create one joint venture with Toshiba Corp. to build color liquid-crystal displays and another for memory chips that will also include Germany's Siemens. IBM Japan also keeps up the pressure on some of Big Blue's most potent global competitors in their home market (chart).
The new vitality at IBMJ can be traced to the arrival in Tokyo 18 months ago of Ned C. Lautenbach, president of IBM World Trade Asia Corp., to which IBMJ reports. Chairman John F. Akers had identified the Japanese unit as being in need of special attention. "I was sent to get our business going again," says the laconic younger brother of Terry R. Lautenbach, head of IBM U.S.
The new boss, formerly in charge of a major IBM software division, has wasted little time. First off, he helped IBMJ President Takeo Shiina trim $40 million from distribution costs by slashing inventories and streamlining product flow. This year, IBMJ is sending 1,300 headquarters staff, about 5% of the work force, to bolster sales and services in promising markets. And it's shifting 1,300 other employees into new software and sales joint ventures.
FRESH AUTONOMY. But the single most dramatic step was last December's sweeping reorganization of the subsidiary. It coincided with Akers' corporate shakeup but moved IBMJ in a different direction--and has notresulted in the big staff cuts that have come in the U.S. While the parent was forming semiautonomous groups, IBMJ consolidated product-marketing groups to better serve broad customer requirements. A new division focuses solely on large customers, selling everything from laptops to supercomputers. Another division concentrates on medium-size and small businesses, and a third on selling services.
In line with Akers' decree to decentralize IBM, the new marketing divisions are quite autonomous. Instead of taking cues from IBM World Trade, for example, they now set their own prices. "We can close deals at least twice as fast as before," says Tsutomu Maruyama, director for personal-systems operations. Shiina says he has made only 25 "major decisions" this year, down from 59 a year ago. "I was the only guy worried about the bottom line," he says. "Now, there are four guys to share thatresponsibility."
The most important marketing thrust is an effort to broaden IBMJ's service offerings. For years, the company so dominated mainframe sales in Japan that it could sell merely plain-vanilla software. But in the 1970s, Japanese rivals such as Fujitsu Ltd. and Hitachi Ltd. began working closely with customers to create software specifically for them--at first, for no charge. IBM was largely unwilling, or unable, to respond in kind. In 1987, for example, public broadcaster Nihon Hoso Kyokai contracted with IBMJ and NEC Corp. to design a sales system. NEC met the project's 1990 deadline, but IBMJ missed it for lack of seasoned engineers and project-management skills.
Shiina, in charge of IBMJ for 17 years, says his focus on software and services will stop such blunders and help IBM restore its lead. After dominating in mainframes in Japan, Big Blue dropped to No. 3, behind Fujitsu and Hitachi in 1989. Shiina has appointed Senior Managing Director Hideki Kurashige, who plotted the latest IBMJ reorganization, to revamp its services menu.
Kurashige's major innovation is a plan for providing specific industries with customized software and services. He's setting up joint ventures with software houses and the software affiliates of certain major customers. The first, launched on July 1, addresses the distribution industry. Others will follow for manufacturing, finance, health care, and the public sector. "This idea is an IBM original and may be just what IBM Japan needed," says IDC's Ogino.
The Japanese subsidiary has already beefed up its business in the faster-growing desktop- and laptop-computer markets. RS/6000 workstation sales, for example, are running three times ahead of 1991 sales in Japan, although from a small base. Sanwa Bank Ltd.'s order for 550 in March was IBMJ's largest ever for workstations.
Although it was late to the laptop-computer market, IBMJ is now making a splash with its PS/55 Note-N23. At $1,344, it sells for $240 less than its nearest competitor, a Sanyo. "Not only is it cheap, it offers better quality and support," says Masaaki Sato, a general manager at T-Zone, a computer shop in Tokyo's bustling Akihabara electronics district. Penetrating Akihabara has finally won IBMJ attention from Japan's influential personal-computer press.
IBM is also driving a wedge into NEC's dominant position in desktop PCs. IBM has organized a large group of Japanese and foreign PC makers to establish an operating-system program called DOS/V, derived from Microsoft Corp.'s DOS 5.0 in the U.S., as an alternative to the DOS version that NEC sells. Already, 15 companies sell DOS/V systems, and IBMJ's Maruyama predicts those machines will win 30% of the local market by December. DOS/V's main draw: It lets any standard IBM PC-compatible run Japanese-language software.
TOO AMERICAN? To large customers, IBMJ is furiously promoting itself as a supplier of "open" systems, which mix IBM and non-IBM gear. Says Lautenbach: "We'll do whatever it takes to solve your problem." The computer chief at a major electronics firm is convinced: "It's no longer 'IBM or nothing.' There's been a change in IBM's thinking."
Still, some critics believe that IBM Japan may be too American for its own good. "They don't have the flexibility of a Fujitsu, which relies on a huge base of subsidiaries, outside dealers, and subcontractors," says one Tokyo computer consultant. That makes Fujitsu a nimbler foe. IBMJ is moving in the right direction, he agrees, but a bit timidly. "Now would be the time to kill Fujitsu," whose earnings are down 69%, "but IBM Japan doesn't have the management structure or system to do that," says the consultant. The IBMJ work force, he believes, still lacks sufficient fighting spirit.
Predictably, Lautenbach disagrees. The restructuring, he says, "has been like turning on faucets of energy" throughout the company. "I feel very positive about our business in Japan today," he says. Until more persuasive figures show up, though, no one will know how permanent IBM Japan's seeming turnaround really is.