Japan's Stimulus Plan Goes High TechNeil Gross
President Clinton minced few words on Mar. 23 when he blasted Japan for its closed markets and intractable trade surplus. In a style no U.S. leader had dared before, Clinton called the chances of penetrating Japan's markets "remote" and omitted any mention of a "special relationship" or other platitudes that have toned down tough talk about Japan in the past. But Clinton's gamble may pay off sooner than anyone would have thought. When Prime Minister Kiichi Miyazawa flies to Washington on Apr. 15 for his first meeting with the new President, he'll be arriving with a hefty peace offering packed in his bags.
The "gift": an economic stimulus plan for Japan worth as much as $120 billion. The details of the scheme are still being hammered out behind closed doors. But it clearly goes beyond traditional bridge-building and road repair. The idea is to spend about $26 billion over two years on computers and telecommunications gear. Japanese leaders are calling it the "new social infrastructure," their buzzword for information technology and the double of Vice-President Al Gore's pet project. The spending spree could turn out to be a key opening for American high-tech companies, many of whom offer state-of-the-art products at competitive prices.
SUPERBUY. But getting Japan to come across with a piece of the action will take some heavy lobbying by companies and more tough talk from Clinton. The Japanese should expect it. Clinton's blunt words put him firmly in the managed-trade camp. And trade officials are said to be reviewing a list of industries to target for trade action.
The centerpiece of Japan's high-tech program will likely be a fiber-optic network linking powerful supercomputers positioned at major universities and government research labs. According to one report, three government agencies hope to purchase up to 20 supercomputers as part of the $1.7 billion network. Diplomatic sources say that Cray Computer Corp. is likely to be one of the suppliers.
Additional chunks of funding will go to upgrading computer networks at government offices in Tokyo, introducing personal computers into high schools, and for two facilities to test high-definition television transmission over fiber-optic cable. The postal ministry's dream is to lay fiber-optic cable to every home in the country by 2015.
For years, this project was under Japan's semiprivate telephone giant, Nippon Telegraph & Telephone Corp. But with profits battered by the recession, NTT can no longer afford the investment. Postal authorities would like control of the project. But to justify the enormous cost, they must first discover fiber-based services that households across Japan would be willing to pay for. Laying fiber to Japan's 42 million homes could cost upward of $280 billion.
STRONG YEN. For U.S. industry representatives in Tokyo, the more important issue is how all these plans will translate into orders. Many U.S. companies are global market leaders in exactly the types of goods and services Japan's package seeks to foster (table). The strong yen is helping Americans price their wares competitively. And many vendors, including IBM, AT&T, Apple, and Sun Microsystems, have strong marketing teams on the ground.
Even so, there are many ways Japan can channel contracts to local companies. If equipment is procured through the central government, Japan is obliged by the General Agreement on Tariffs & Trade and by various bilateral accords with the U.S. to follow open bidding procedures. But no such rules apply to tenders by local governments, which could end up in charge of many of the public funds.
U.S. executives question the intentions behind the package. Some believe the real aim is to shelter Japan's ailing electronics makers through the recession. But if all the funds flow to domestic players, it's certain to raise hackles in Washington. "If this package is supposed to address the trade deficit," says John Stern, American Electronics Assn. vice-president for Asian operations, "it must offer equal access to American technology companies." Given the U.S. lead in so many facets of the Information Superhighway, such access would bring benefits to the Japanese as well.
WHAT'S ON JAPAN'S SHOPPING LIST SPENDING TARGET: $26 BILLION (EST.) Product Potential bidders SUPERCOMPUTERS Cray, Convex, Intel PERSONAL COMPUTERS Apple, IBM WORKSTATIONS Sun, HP, DEC FIBER-OPTIC CABLE Siecor International, AT&T SWITCHING GEAR AT&T, Northern Telecom LOCAL-AREA NETWORKS Cisco, Wellfleet, Novell, Microsoft DATA: BUSINESS WEEK