An interesting aspect of ‘The Puritan Gift’ as a book is that almost every news item that one reads seems to lead back to it. A recent item about the Japanese manufacturer Sharp provides an example. In what Ken and I called ‘The Years that the Locust Ate’ (1971 – 1995), American manufacturers ‘offshored’ manufacturing to Asian countries where the cost base was lower. The immediate effect on their P&L was positive, for reasons that are obvious. However, they made the strategic error of ‘offshoring’ the technology with the manufacturing. Within a decade, there would in many cases be no one left in the parent company who knew how to make the articles in question. The Asian beneficiaries of this trick were able to say, in the words of Don McLean’s immortal song (1971): ‘Bye, bye American Pie’, Drove my chevy to the levee but the levée was dry’.
Because of the rise of the yen against the euro and the dollar, Sharp finds itself in much the same position today as American manufacturers of the 1970s. It faces three options. It can continue manufacturing in Japan as at present and lose money, perhaps going bankrupt. It can offshore the manufacturing and the technology as the Americans did, losing out in the long run to overseas competitors. Or it can offshore the manufacturing but retain the technology. Put thus baldly, the answer has to be: go for the third option, but that leads at once to the practical question: how do you do it?
The answer has to be a mixture of measures. One simple approach will be for Sharp to manufacture in Japan to meet Japanese demand, which is less affected by movements in exchange rates than overseas demand. This will provide only a partial solution since competitors will produce goods cheaply outside Japan and sell them into the Japanese market, partly undermining Sharp’s strategy. However, those who manufacture in Japan to meet Japanese demand will benefit from lower transport costs, shorter supply routes, a better understanding of the wishes of the domestic consumer and perhaps even brand loyalty.
A more profound answer lies in maintaining Japan’s traditional quality of management. The 1970s, when America started offshoring manufacturing on a large scale, was also the era when the ‘financial engineers’ began to take over from the ‘mechanical engineers’ in the upper ranks of American manufacturing. The ‘new men’ regarded technology as a commodity to be bought in when it was required, not as something which they had to master themselves. As long as Japanese companies are run either by techonogists or at least by people who have a profound respect for technology, they can ‘offshore’ manufacturing with a degree of confidence. The all-important know-how will remain deeply imbedded in the culture of the parent. Who knows? — one day Sharp may find that the balance of advantage lies in bringing it all back home. Not long ago Kenwood Yamagata, the Japanese maker of home and car electronic equipment, did exactly that when it repatriated the manufacture of portable minidisc playersfrom lower-cost Malaysia (see page 252 of ‘The Puritan Gift’).
