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International -- Information Processing: TELECOMMUNICATIONS
CAN AT&T GET THROUGH TO JAPAN? (int'l edition)
Within hours of the earthquake that struck Kobe last Jan. 17, technicians at the network control center of Japan's national phone company, Nippon Telegraph & Telephone Corp., had to cope with a torrent of Kobe-bound phone calls--more than 50 times normal levels. Fortunately, NTT's damage-control experts had a new tool: AT&T had installed a $110 million system with four giant video screens displaying color-coded network maps that allowed frantic managers to quickly reroute calls. "I shudder to think how much worse it would have been without the new system," says Minoru Matsuoka, a director of international procurement. "It functioned extremely well."
Those words must be sweet for AT&T, after a history of more folly than favor in Japan. In the early 1980s, AT&T tried to sell Japanese companies plain-vanilla, off-the-shelf telecom gear and got nowhere. Infighting between its many business units made matters worse, and a scattershot approach to joint ventures led to unfocused sprawl. Also, AT&T had not been aggressive in fighting the market barriers that frustrate many outsiders in Japan. The result: AT&T is a distant third in such markets as telecom switches, behind Northern Telecom Ltd. and L.M. Ericsson. And analysts say AT&T could be outgunned in data network services by rival British Telecommunications PLC.
Clearly, AT&T has immense potential. No other competitor can offer Japanese customers the U.S. giant's state-of-the-art technology and globe-spanning network services. Just ask a Japanese engineer. Michiyuki Uenohara, an executive adviser at NEC Corp., is a fervent admirer of AT&T technology after spending 10 years at Bell Laboratories. He can't quite hide his pleasure at AT&T's newfound sense of mission. "I think they are getting themselves back on track," he says.
MOBILE-PHONE FIGHT. AT&T has been trying to go global for at least a decade. Until now, its efforts in East Asia have been directed toward China, India, and other markets. But the phone giant decided to get serious about Japan last October. That's when CEO Robert E. Allen dispatched a 31-year company veteran, Louis C. Golm, to Tokyo to clean house. Golm, 53, had previously been in charge of marketing AT&T network services to U.S. businesses and is the highest-ranking corporate officer to lead Japan operations. His battle orders: Knit together a cohesive team from disparate divisions--including a former NCR Japan operation that dwarfs AT&T's other subsidiaries--and push his engineers to tailor products to Japanese needs.
If anyone can accomplish such a transformation, AT&T watchers think it's Golm. For starters, he has clout at AT&T's Basking Ridge (N.J.) headquarters. Colleagues also say his manner--that of a kindly high school principal who rarely flares up--goes over well with Japanese customers. Granted, he cannot speak Japanese and has no previous international experience. But Golm seems attuned to local cultural quirks. "It always impresses me the way he picks up on Japanese body language," says a key Japanese executive at AT&T Japan.
Whatever his strengths, they seem to be working. AT&T sold 104 of its powerful model 3600 "parallel computers" last year, at $1 million to $10 million a pop, to customers such as Japan's top credit- card company, JCB International, and Nomura Research Institute Ltd, the research arm of Nomura Securities Co. It is also hustling to find new markets. AT&T's chips are inside over 2 million cordless phones made by Tottori Sanyo Electric Co., processing voice signals and recording messages. AT&T engineers recently proposed a chip to Tottori Sanyo that would recognize enough speech to permit voice-activated dialing. In the old days, AT&T's chipmakers couldn't be troubled trying to find consumer applications, notes Shosuke Tanaka, a chief engineer at Tottori Sanyo.
If there's a question mark over Golm, it's whether he has the grit to go toe-to-toe with Japanese bureaucrats when AT&T's products are shut out of the market. AT&T has always been the nice guy among foreign companies in Japan. "They have no sense of going for the jugular," says one AT&T insider. But getting tough can pay off. Motorola Inc. lobbied fiercely against trade barriers in the 1980s and offended many Japanese officials and executives--but won nearly a quarter of the Japanese market for mobile phones.
Golm says AT&T will not follow Motorola's lead: "I don't expect to succeed here by walking across the street and asking Ambassador [Walter] Mondale to sell my products for me." But behind the scenes, AT&T is starting to put the pressure on to open certain telecom markets. Motorola officials say that AT&T has joined it in talks with Washington trade wonks, and Glen S. Fukushima, AT&T Japan's director of public policy and market development and a former deputy U.S. Trade Representative, is known as a trade hawk.
The most significant move: AT&T is stepping up pressure on the U.S. Trade Representative to come down hard on Japan in trade talks scheduled for July because NTT has refused to open the bidding for a new mobile-phone system called PHS. That system is similar to the Personal Communications Services (PCS) setup being planned for the U.S. The U.S. company says Japan is balking even though it agreed to the procurement procedures with U.S. negotiators last October. AT&T is designing switches for the PHS standard with components maker Nippondenso Co. and dearly wants a foot in the door of a market that analysts say will be worth over $600 million by 1997.
Before AT&T can really get the most out of the Japanese market, however, it will have to finish cleaning up its own act. A big hang-up has been coordinating activities of the company's 22 business units that sell in Japan. These groups are "used to acting like completely different companies," says one AT&T executive. Indeed, as recently as two years ago, one unit was close to making a sale to a Japanese utility when it heard that another division had approached the same company claiming its equipment was better. "Sometimes the customers know what's happening inside AT&T better than its own people," says another executive. Making these fiefdoms cooperate won't happen overnight. "Their marketing still looks pretty jumbled to me," says a customer. Yet, he adds, he has "high hopes" of change now that AT&T has placed a senior executive in charge.
BIG SALARY GAP. In addition to trying to get all AT&T units singing from the same hymnal, Golm has to undo the mistakes of the past. A good place to start: AT&T's numerous Japanese alliances, several of which have been mismanaged. Take AT&T Jens, a partnership with the Industrial Bank of Japan (IBJ), Fujitsu, Kokusai Denshin Denwa, and others. AT&T gave the alliance a high degree of autonomy and O.K.'d what now appear to be overly aggressive plans to sell data and fax transmission services over high-speed digital lines, which meant doing battle in a market teeming with more than 300 rivals. Sources close to the company say AT&T nearly bailed out last year, until IBJ persuaded it to continue. AT&T officially denies it ever contemplated pulling out.
Golm's toughest challenge may be integrating the operations of the former NCR, purchased by AT&T in 1991 for $7.5 billion and renamed the Global Information Solutions Div. (GIS). NCR Japan, with a 75-year history in the country and its own Tokyo Stock Exchange listing, is about as Japanese as an American company can get. It is also by far the larger business, with 5,000 employees, vs. the 600 or so who work for the rest of AT&T in Japan.
It doesn't help that, after four years, the two sides don't quite mesh. GIS's Japanese executives are still listed in a separate AT&T phone directory and work in a different building. Worse, their executive pay ranks in the bottom third of foreign companies doing business in Japan. Other AT&T employees rank in the top quarter. The disparity could rankle considering that GIS is coming off tough times. When Japan's economic bubble burst in 1990, the banking industry, GIS's biggest source of business, pulled in its horns and revenues plunged. Ranked by its taxable income of $54 million in 1993, GIS plummeted to No.42 among foreign corporations in Japan, from No.19 just a year earlier. But Hideaki Takahashi, head of GIS, is starting to reverse the decline, and revenues edged up 7% in 1994, to $1.16 billion.
REACHING FOR SYNERGY. One of Golm's tasks is to win access for other AT&T units to NCR accounts, which include top banks and major retailers such as supermarket chain Ito-Yokado Co. In turn, the computer unit would get a boost from AT&T's prize network technology. Granted, such synergies have yet to emerge in the U.S., but AT&T Japan is determined to be more successful. "I am resolved that we will have one unified strategy," says Golm. "Part of my coming here was a clear statement by Bob Allen that this is our fundamental strategy. I don't think there's anybody at AT&T who misses that point."
To make sure nobody missed the point, Golm installed himself in the GIS building. He also launched the first of perhaps a dozen projected "customer focus groups" last year, to develop unified market strategies. The results to date are mixed. The first group, formed to serve NTT, AT&T's largest phone-equipment customer, petered out after just a few meetings. Golm has since dedicated two executives to making sure the teams stay on the ball.
Forging a high level of internal cohesion will be essential if AT&T is ever to reach Japanese levels of customer satisfaction, one of the cardinal rules of cracking the market. Last year, for example, long-distance carrier Teleway Japan Corp. chose AT&T as a major network-equipment supplier because no other company could solve its broad range of communications problems, says Teleway President Kan Higashi. But he got fed up with AT&T engineers who delayed installing crucial switching gear because of in-house squabbles over budgets. Higashi ended up sending a letter to Basking Ridge before he got the service he needed. "We don't want to be involved with their internal feuds," he says.
Golm's troops are starting to get the message. GIS recently joined two other units in an effort to create phone centers for distribution and service units of corporations. The business supplies equipment--GIS workstations and private branch exchange switches--and is working on adding operators trained and employed by AT&T's phone-services division. Bell Labs, too, is in on the synergy: It just melded its wireless computer technology with a system developed by GIS.
Another reason for AT&T's new sense of urgency is that competition is heating up, particularly in the data transmission services that AT&T is pushing. British Telecom has made Japan one of its top three priorities for its "Concert" data service for multinational corporations and is on the prowl for Japanese partners. And everyone expects restrictions on voice transmission by foreign carriers to fall in the next few years.
AT&T isn't ceding the race to British Telecom. In March, it landed NTT as a trial partner of its "WorldPartners" alliance, Concert's chief rival. But NTT plans to have only one customer for the trial, leaving some industry watchers to wonder about the depth of NTT's commitment. "The battle is not over yet," says Iain M. Johnston, a Hong Kong-based analyst for J.P. Morgan Securities Inc. "It may well be that NTT is only trying to force a better deal out of British Telecom."
Golm says AT&T is committed to building a major presence in Japan, whatever the costs. The market may be hard to crack, but it's too big to ignore, and there are too many key telecommunications players moving in. "If you're out of this market, if you don't know what they are doing, you are at risk," he says. That's a risk that AT&T, committed to being in every sector of the telecom market, can no longer afford to take.
Building a cohesive team in Japan
Partnership with Sanyo Electric to design custom chips to process voice signals for cordless phones
Licensing technology that enables voice20and data to be piped down a phone line20simultaneously
Partnership with KDD and NTT,20the Japanese phone20carriers, offering network services to multinational companies
GIS division, formerly NCR, sells computers20and related equipment
Developing a new generation of video phones20with Sharp
Partnership with Nippon Idou Tsushin Corp., a mobile phone service provider, to develop wireless equipment
Joint venture with Industrial Bank of Japan, Fujitsu, Hitachi, and KDD to offer data links and Internet access
Working with NEC on the next generation of computer chips
DATA: COMPANY REPORTS, BUSINESS WEEKBy Larry Holyoke in Tokyo, with Douglas Harbrecht in Washington