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  ICBTT2004 Technology & Society Division, JSME

Innovation And Technology Management In The Japanese Machine Tool Industry

Masatsugu TSUJI

This paper attempts to analyze how "the Japanese technology" was formed in the Japanese machine tool industry, and presents how Japanese machine tool builders won the competition for R&D and innovation in the domestic as well as international markets. The key innovation in the machine tool industry in the 1970s was numerically-controlled (NC) machine tools and computerized numerically-controlled (CNC) machine tools. During the competition for innovation of CNC, drastic changes in the rank order of individual firms in terms of amount of production occurred. Prior to the transformation, the "Big 5" companies with a long tradition occupied the largest market share. After the innovation, however, the "Big 3" firms which were not big in size at their origins increased their market share tremendously. This paper explained how this drastic change stemmed from the viewpoint of different attitudes towards innovation and technology management between Big5 and Big 3.

Key Words: Computerized numerically-controlled (CNC) machine tools, Electronics, Strategic Alliance

1. Introduction

The Japanese machine tool industry was not endowed with its high quality level from its origins, as was basically the case for other products. It established its current position through the tremendous efforts exerted by all those who displayed their craftsmanship with the wish of catching up with Western technology and winning the race for innovation. The Japanese manufacturing industry more or less began with an imitative process called "reverse engineering," that is, making a "dead-copy," and gradually absorbed advanced technology. Along with this process, two types of technology -- Western and indigenous -- the latter indicating accumulated skills and traditional craftsmanship, were assimilated into "Japanese technology". The machine tool industry is a representative example. In this paper, we attempt to trace the history of the machine tool industry from the point of view of technology, and focus on the Japanese way of technological development and management.

2. Access to new Technology

In this section, we will review how the Japanese machine tool industry introduced advanced Western technology after the Second World War.
2.1. Introduction of Western Technology
During the war, the importation of foreign machine tools was not possible, and later, the transfer of equipment owned by machine tool builders as compensation for wartime damages was considered. It was under these circumstances that the production of Japanese machine tools after the Second World War began in 1952. Thus, for nearly ten years, Japanese machine tool builders did not have access to Western technology, so it was a matter of great urgency for them to catch up in terms of obtaining advanced technology, and the most immediate way was their introduction. In the 1950s, eight technology-related contracts or agreements were concluded, and by 1960, thirty-seven had been made with France (14), the U.S. (12), West Germany (4), Switzerland (4), and other countries. The first technological cooperation agreement was concluded between Tsugami and France's Cri-Don S.A. which was related to the technology of the screw-cutting lathe. Technology introduced in this period included the lathe, milling, and grinding machines, and they were of the conventional type. Such technology become the basis for the later development of the Japanese machine tool industry.
From the 1960s, nearly half of the advanced technology introduced to Japan was from the U.S. The reason for this was that, during this period, NC machine tools were being introduced into the market, and the U.S. had the most advanced technology in this field. Japanese machine tool builders also targeted the development of NC machine tools as tools of the future generation. It is evident that the number of cases of introduced technology was relatively numerous during the 1961-65 and 1971-75 periods, and this was due to NC machine tools; namely, the reason for the former period was as previously mentioned, and that of the latter period was related to computerized numerically-controlled (CNC) machine tools, which will be discussed later in more detail (see (1) and (2)).
In the late 1970s, the number of technology cooperation agreements declined sharply, and this implies that the Japanese machine tool industry had finally caught up with that of the West. At this time, Japanese machine tool builders acquired only a portion of the patent, and cross-licensing became popular. Then, towards the 1980s, technology related to CNC machine tools and industrial robots was being provided to Western firms. This indicates that Western companies began to rely on Japanese technology.
2.2. Form of Technology Transfer
The introduction of foreign technology to Japan, that is, in the form of technology-related contracts and agreements, was characterized by the acquisition of patents, gaining know-how as well as the purchase of machine tools to serve as samples. Other methods such as joint ventures were yet common and only seven cases of joint ventures have been reported since 1963.2) Japanese machine tool builders more or less began with an imitative process called "reverse engineering," as did other manufacturing industries.
The characteristics of the introduction of technology by Japanese machine tool builders can be found in their variety and quantity. As for the former, it included a wide variety from conventional to the most advanced at that time, which means they were incomplete. When machine tool builders introduced such incomplete technology, they themselves had to engage in R&D activities, but they gained much in terms of technology and know-how, more than they might have if they had introduced complete technology. In this context, the Japanese way of foreign technology acquisition is in marked contrast with that of East Asia in recent years, which is characterized by FDI -- advanced and complete technology being acquired through FDI. Although this manner of acquisition of new technology is rather easy and quick, it is not the best way to become independent from foreign technology.

3. NC and CNC Machine Tools

Here, we will present the innovations in the machine tool industry, and how Japanese machine tool builders compete in R&D in the domestic as well as international markets.
3.1. Development of NC and CNC Machine Tools
Innovation in this industry was led by NC machine tools and, later, NC machine tools controlled by computers, that is, CNC machine tools. NC machine tools were first experimentally invented by MIT in 1952. In 1955, Giddings & Lewis produced the first commercial NC machine tool. In Japan, Makino Milling produced a NC milling machine in 1958, three years after the U.S. It was from the mid-1960s that NC machine tools generally began to be manufactured and shipped to the market. Though Japanese firms were latecomers in possession of a rather low level of technology, they eventually gained and promoted their level of technology and joined the race for NC machine tools.
The essential technology for NC machine tools involved moving materials to be processed with accuracy, which consisted of the following: (a) finding the position of materials, and (b) controlling the motors. The former detects the accurate position of materials, and the latter moves them to the right places. Core devices which consist of the above two functions were operated with numerical values, rather than with the eyes of an experienced craftsman. Innovation related to the latter was the utilization of servo rather than pulse motors. Servo motors can smoothly adjust the position of materials to programmed ones; on the other hand, pulse motors were operated with electric signals (pulse) and did not function with accuracy. In addition, the modularization of devices should be noted, namely, all part of the device were modeled into one part. This led to one device being attached to different machines. During the early 1960s, Japanese machine tool builders gradually solved the technical difficulties in the R&D process and put the innovations into practice.
Innovations in other fields had also been introduced to the machine tool industry, particularly those which were related to electronics, and because of this the core controlling devices of machine tools were greatly improved. Prior to the 1960s, signals were transmitted through vacuum tubes or magnetic tapes, and according to electronics innovations these were replaced, in succession, by transistors and IC chips in the 1960s, and micro-computers, micro-processors, and finally computers in the 1970s. These technological developments changed the control system from a closed-loop to an open-loop one: the former has a feedback loop to adjust errors; the latter does not have such loops and corrects the errors automatically. Numerical signals were easily converted into digitized ones, and the above servo motors, for example, were innovated into digital-controlled (DC) servo motors. Digitalization improved the accuracy of the machine tools. The development of computer technology also introduced the core-controlling device of machine tools. Machine tools such as the lathe, milling, and grinding machines had their own control systems, called the hard-wired method. By utilizing computers, however, the core-controlling device became common to all machine tools; by changing the program or software of computers, these devices can be attached to different machine tools. This is referred to as the soft-wired method, and CNC machine tools required these technological developments in order for them to be fully utilized.
CNC machine tools also had the following economic and managemental effects on the machine tool industry: (a) standardization, and (b) downsizing of machine tools. As for the former, CNC devices are separated from specific machine tools, that is, CNC devices can be standardized, which leads to their mass-production and lower prices. Prior to the production of NC and CNC machine tools, they were made-to-order and thus expensive, and these characteristics limited the demand for machine tools to large-scale manufacturers. Downsizing also implies price reduction, and this expanded the demand for machine tools in two ways: first, CNC machine tools are in greater demand by small- and medium-sized firms; and second, there is a demand for these tools from various other industries such as those related to general machinery, automobile, and precision machinery. Thus, innovation in the machine tool industry was not only a technological achievement, but also greatly influenced the fields of economics and business.
3.2 R&D Process for NC and CNC Machine Tools
According to (1), the concept of NC machine tools introduced to Japan at the 47th Meeting of the Automatic Control Association in 1952, and it drew the interest of all machine tools builders and researchers. This was thus the beginning of the R&D of NC machine tools. The number of introductions of foreign technology related to NC devices from 1966 to 1970 was 12. Electronics makers such as Fujitsu, Mitsubishi Electric, Hitachi, Yasukawa, NEC, and Oki Electric were also interested in the NC device. Fujitsu, especially, had a business strategy of entering new markets such as those related to computers, communications, and automatic control. Both electronic makers and machine tool builders shared a common interest in NC devices or NC machine tools, and thus formed strategic alliances with each other. Those alliances in 1970 are shown in table 1 below. In 1970, Fujitsu had already taken the lead in the R&D for NC devices. Fujitsu separated its NC section by setting up Fanuc in 1972, which subsequently took a dominant share of the market.
In the development of NC and CNC machine tools, the alliance of electronics makers and machine tool builders played an important role. The former had the know-how and long years of experience in electronics and computers, and the latter specialized in manufacturing. They both shared common objectives. The term "mechatronics," which has the same meaning as CNC machine tools, indicates that this process is a combination of electronics and machine tools.
Regarding the process of R&D of NC and CNC devices, reference should be made to Fanuc. The success of Fanuc was dependent on: (a) the personal contribution of S. Inaba, who was the leader of the R&D section for NC devices. He was an engineer working on automatic control and had the sharp insight to immediately recognize the importance of NC devices. His breakthrough invention for CNC devices was the servo motor in 1974, with the technological assistance of the U.S.'s Gettys. Fanuc continued to devote its efforts towards the development of CNC devices, and other electronics makers dropped out from the competition, since they had gradually lost their interest in CNC devices. The earliest version of CNC machine tools was not satisfactory to its users due to poor performance, since they were slow, huge in size, and could only accomplish a small variety of jobs. Fanuc, which had separated from Fujitsu, was the only company specializing in the manufacturing of CNC devices, while others were only a part of the main business. Fanuc could thus concentrate on its R&D for CNC devices. In addition, Fanuc has the reputation of spending the largest amount for R&D.
3.3. From the Big 5 to the Big 3: Competition for Innovation
In this section, we will discuss the domestic competition for innovation or R&D, and its aftermath, namely, how the success or failure of the development of NC machine tools affected the rank order of individual firms in terms of amount of production. Prior to 1977, companies with a long tradition in manufacturing machine tools which included Ikegai, Okuma, Toshiba Machine Tools, Hitachi Precision Works, and Toyoda Machine Works, were called the "Big 5," and occupied the largest market share in the industry. They had a long tradition in producing machine tools, especially Ikegai which was one of the oldest companies in this industry.
There was another category of firms, namely, that of Okuma, Yamazaki, and Mori Precision Machinery. The size of this group was not very big at its origins. After 1977, the rank order of the firms in this industry changed entirely. The aforementioned firms increased their market share tremendously, and Yamazaki, Okuma, and Mori are presently still the biggest companies in the world. Due to this, these firms are referred to as the "Big 3" in the following section. The most well-known firm in this industry, Ikegai, has suffered a drastic loss in its market share (see (5) in more datail).
3.4. Two Categories of Technology Management
The drastic change in rank order of market share, as stated above, stems from the success or failure to develop new technology, i.e., NC machine tools, or more precisely, CNC machine tools. Here, from the point of view of innovative technology management, we make a comparison of the Big 5 and the Big 3 in terms of philosophy towards the development of new technology such as NC (CNC) machine tools.
The Big 5 had a long reputation of producing special purpose machines, since most of them belong to the "zaibatsu group" which established machine tool firms in order to supply machine tools to their affiliates. Hitachi, for instance, specialized in turret lathes, and was the biggest manufacturer of milling machines, which were later replaced by machining centers. Hitachi, Toshiba, and Toyoda Machine Works produced special purpose machines for big manufacturers. Toyoda Machine Works was established as an affiliate of Toyota Motor Corporation, and produced machine tools mainly for its parent company. The size of the market for those specialized machine tools is limited, therefore its production cannot create economies of mass-production. Also, since they were big and prominent firms, and possessed much management resources such as researchers engaged in R&D activities, when faced with the new technology, they took the strategy of developing NC (CNC) machine tools on their own. However, this caused them to devote too much time to this project, and they were subsequently left behind in the race for the development of NC (CNC) machine tools.
On the other hand, the Big 3 took a different R&D strategy. Let us first examine the cases of Yamazaki and Mori. They were quite small-sized firms when the race for developing NC (CNC) machine tools started, and were too small to develop new technology by themselves. Instead, they decided to work in alliance with computer makers such as Fanuc, Yasukawa, and Mitsubishi, who were engaged in developing electronic devices or computers at the time, which were also applicable to machine tools. They preferred the so-called strategic alliance with firms of other industries, rather than carrying out technology development by themselves. Firms in the electronics industry specialized in the development of computers and had many R&D sections engaged in the development of computer hardware as well as software. Joint efforts in R&D by machine tool builders and electronics companies made it possible to win the development competition.
The strategy chosen by Okuma was similar to other prominent firms, that is, their own development. As stated earlier, the Big 5 had an accumulated level of technology and long tradition of R&D activities as machine tool builders, as well as were rich in human resources. The difference between Okuma and other prominent firms is their target of R&D. The latter aimed for the development of rather large and specialized machine tools for specialized firms and specialized jobs; on the other hand, the former targeted general machine tools for simple tasks. Okuma thus expected to have a large demand for NC (CNC) machine tools from small- and medium-sized manufacturers, who preferred machine tools sold at reasonable prices for simple tasks such as drilling and milling. One of Okuma's key inventions in its development of NC (CNC) machine tools was the introduction of the servo motor, rather than using the pulse motor, as stated in the previous sections. NC (CNC) machine tools with servo motors can automatically adjust their position to programmed ones; on the other hand, pulse motors were operated with electric signals (pulse) and did not have the function of automatic adjustability. Okuma's success thus lies in their technological tradition and craftsmanship as a machine tool builder.
Since it is necessary for even new products embodied with new technology to be in demand by the users in the market, marketing strategy is another important factor of R&D. This was correctly understood by the Big 3. The success of Yamazaki and Mori depended upon their strategy of specializing in the sales of NC (CNC) lathe-turning machines and machining centers to small- and medium-sized manufacturers. Mori, especially, put an extra effort in selling its NC (CNC) machine tools in the domestic market. Its marketing strategy involved establishing sales networks all over Japan, and providingafter service to small businesses such as quick repair in case of mechanical trouble. For small businesses, the stoppage of production lines due to mechanical trouble leads to great losses. Yamazaki also took the same strategy, and it was one of the first firms to establish a direct sales network system in this industry, which had traditionally adopted the agent system. Yamazaki made a special effort to export machine tools abroad, especially to the U.S. and Europe, and took the same marketing strategy it used in the domestic market, that is, supplying NC (CNC) machine tools with reasonable prices and attentive after service. Its success was thus similar to that of Honda's, which stressed exports more than sales in the domestic market, and its reputation established abroad promoted the domestic demand for it. Both formerly had a rather poor reputation in regards to quality in the Japanese market, but after achieving success in the foreign market, they were able to improve their reputation more than ever before.
In sum, the strategy taken by Yamazaki and Mori is referred to as a strategic alliance, which made use of outside resources, and specialized their core competence in the manufacturing and marketing of their products. Though an outsourcing strategy is now popular in the network age, they were already being put into practice over twenty years ago.
3.5 International Competition for CNC Machine Tools
The reason why Japanese machine tools were able to take the greatest share in production is that they successfully combined computers with machine tools. As mentioned earlier, the size of Japanese machine tool builders was relatively smaller than those of the U.S. and Europe. This means that they could not afford to direct much funding to R&D activities to invent NC machine tools. They chose instead to cooperate with other computer companies rather than invent the machine tools themselves. The latter took part in activities to develop software, and the former specialized in its application to machine tools. On the other hand, U.S. machine tool builders chose to develop both aspects on their own. Thus, much time was consumed for their development.
Another approach taken by Japanese manufacturers was specializing in NC machine tools with simple functions, such as milling, drilling, and cutting. In addition, they also targeted a class of customers consisting of small- and medium-sized companies by means of producing general-purpose machine tools. On the other hand, U.S. machine tool builders specialized in production for big companies such as those related to military aerospace and, as a result, they produced much more sophisticated, but expensive machines.

4. Concluding Remarks

Finally, we summarize the basis is for the formation of Japanese technology.
4.1. Continuous R&D Process
The innovation process of the Japanese machine tool industry is divided into three stages: first, is its introduction of Western technology; second, is the development of NC and CNC machine tools; third, is the attainment of the largest share of world exports. The technological gap thus became increasingly narrower in the later stage. This was made possible because the experience and know-how achieved in the absorption of Western technology embodied in machine tools are the basis for the innovation of NC machine tools: what the Japanese machine tool industry achieved in the R&D process of NC machine tools became the basis for the development of CNC machine tools. This continuous process of R&D led to steady improvement, and this resulted in a big technological leap forward for the whole process.
The Japanese way of forming technology is in remarkable contrast to that of East Asian economies, where growth has been driven by the FDI of Western firms. By making use of FDI, those economies acquired new technology. This type of industrial development is called "leapfrogging," which indicates that those countries bypassed the acquisition of basic technology or R&D (see (3), (4) and (5)). The recent development of household electronic appliances and electronics industries in Southeast Asian economies can be explained by this theory. They bypassed the above process, and with the advantage of their low labor cost, they have been competing with and forcing other firms out of the market. From the viewpoint of acquisition of high technology, FDI is not necessarily the best way to become independent from foreign technology. As is often pointed out, multinational companies do not necessarily transfer the technology they possess.
4.2. Aspects behind Japanese R&D and Innovation
The quality of Japanese machine tools is not necessarily superior to those of the U.S. and Germany. Then why do Japanese machine tools have the largest share in production and a one-third share of world exports? It is due to their maintaining a quality level that is reasonable for their prices, that is, the better economic performance of Japanese machine tools. This characteristic is a result of Japanese industrial culture, which can be summarized as follows.
(a) Process innovation: The characteristics of technological development of the Japanese machine tool industry is found in its ability to improve existing technology. Innovation for modularization, standardization, and downsizing in the process of the development of CNC machine tools, as shown in the previous sections, led to mass-production and a drastic decrease in their prices. This exactly is process innovation, which is a common characteristic of other processing and assembling industries. Although all original ideas related to NC and CNC machine tools were from Western economies, Japanese manufacturers first invented new production processes then worked for continuous improvements. The mass-production system enabled Japan to be competitive. Japanese machine tools were not outstandingly superior in technology, but were highly competitive.
(b) Engineers' interest: In the processing and assembling industry, sources of production technology are related to all fields, e.g., CNC machine tools are products of mechanics and electronics. The development of its technology depends upon those of other industries. Japanese processing and assembling industries absorbed, combined, and integrated all related technology to their own. This is because Japanese engineers were interested in new trends in technology. After they became acquainted with new concepts or ideas, they obtained further information from scientific journals and materials available at American cultural centers, for instance, operated by the GHQ in the 1940s. Japanese researchers and engineers are said to work at job-shops, in other words, their R&D activities are not separated from actual manufacturing.
(c) Market-oriented technology: Japanese machine tools are mainly general-purpose, while the U.S. and Germany manufacture special-purpose machine tools for military purposes or highly sophisticated tasks. There is thus a greater demand for Japanese machine tools. Another example of its marketing strategy is maintaining various kinds of products; in addition to a fundamental product, by adding other parts or functions to it, various types of products can be offered to the market. This responded to needs of the users who liked to choose from among a wide variety of products.
Machine tools are producers' goods and are supposed to last longer than consumer durables, but Japanese machine tool builders manufacture them on a large scale like consumer durables. One example is found in their frequent model change. The life span of Japanese machine tools is said to be short, several years for instance, whereas those of Germany or Sweden are guaranteed to last much longer. Japanese manufacturers chose the most economical way of production, and made an attempt to maintain competitiveness with a shorter engineering time.


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