Becoming a Triad power:

the new global corporation

Dr. Kenichi OHMAE ist Direktor der internationalen Unternehmens-
beratungsgesellschaft McKinsey & Company, Inc., und Leiter der ja-
panischen Niederlassung. Nach seinem Studium der Natur- und Inge-
nieurwissenschaften in Japan und den USA promovierte eram Massa-
chusetts Institute ofTechnology (MIT) in Boston/USA. Als leitender
Ingenieur bei Hitachi und als Berater bei McKinsey & Company hat
er umfassende Markt- undBranchenkenntnisse in der Triade erwerben
können. Neben seiner Beratungstätigkeit ist er auch durch zahlreiche
Publikationen zu einer Reihe wirtschaftlicher und gesellschaftlicher
Themen international bekannt geworden.

Das internationale Beratungsunternebmen McKinsey bat sicb zur Aufgabe gestellt, in en- bal enterprises organized for doing busi-
ger Zusammenarbeit mit der Fübrung von K1ienten-Unternebmen praxisnabe Lösungen ness in the 1960s are out of date.
für aktuelle Top-Management-Probleme zu entwickeln und einzufübren. Ziel ist dabei die Following World War 11, American multi-
nacbbaltige Verbesserung und Leistungsfäbigkeit der beratenen Unternehmen und Orga- national enjoyed a virtually insurmounta-
nisationen. McKinsey wurde 1925 in den USA gegründet; derzeit beraten 38 McKinsey- ble technological and competitive edge and
Büros in 19 Ländern private und öffentlicbe Organisationen in allen Fragen der Unterneb- could straddle Latin America, Asia and
mensfübrung.ln Deutscbland, Österreicb und der Schweiz arbeitet McKinsey seit 1964 mit Europe. From 1945 to 1965 some 2,800 US
heute ca. 200 Beratern und etwa ebensovielen Mitarbeitern in Stabs- und administrativen businesses had stakes in 10,000 direct in-
Funktionen. Jedes McKinsey-Büro ist eng mit den Merkmalen und spezifiscben Manage- vestments abroad, aimed in most cases at
ment-Problemen seiner Region vertraut, nutzt dabei aber den weltweiten Erfabrungs- exploiting a technological advantage
scbatz des Gesamtunternebmens. (IBM, Texas Instruments, Xerox), a unique
Bei der naturgemäß vorhandenen Heterogenität der Klientenorganisationen und Bera- product (Gillette, Kellogg), or a leading po-
tungsthemen sieht McKinsey, vor allem für Großunternehmen in Nordamerika, West-Eu- sition in US industry (General Motors, In-
ropa und Japan eine Reihe von wesentlichen Herausforderungen, deren Bewältigung ent- , ternational Telephone & Telegraph). Most
scheidend für den langfristigen Unternehmenserfolg sein wird: Die Sicherung der Innova- of these subsidiaries were clones, so to spe-
tionskraft durch leistungsfähiges Technologie-Management, die Globalisierung wichtiger ak, of the parent organization, each with its
Märkte, die Bildung von internationalen Kooperationen und strategischen Partnerschaf- miniature versions of corporate headquar-
ten, neue Formen der Organisation und Unternehmensführung, Entwicklung und Moti- ters.
vation von Führungskräften und Mitarbeitern, sowie die politische und gesellschaftliche Many of today's leading world enterprises
Verantwortung der Unternehmen. Der Autor des folgenden Artikels, Dr. Kenichi Ohmae, are still structured along traditional lines.
geht auf eines dieser Themen in seinem 1984 erschienenen Buch »Triad Power« (herausge- Yet the world around them has changed
geben durch The Free Press) mit der zentralen These ein, daß internaJional operierende dramatically. Consider:
Unternehmen den Schlüsselmärkten Europa, USA und Japan - ungeachtet der Entfer- • Siting production facilities in low-Ia-
nung vom Sitz der Unternehmen - gleiche Aufmerksamkeit widmen müssen. Dieser Arti- bor-cost locations - the »global enter-
kel ist dem zitierten Buch entnommen, welches 1985 unter dem Titel »Macht der Triade« prise« model - is still the fashion. Yet
im Gabler-Verlag erschienen ist. the economic advantages of doing so are
likely to be short-lived. Most competiti-
Three major markets - the »Triad of Ja- products. Japan, the United States and ve Japanese companies, for instance, are
pan, Europe and the United States - are West Germany a10ne comprise 70 percent today pulling out of Southeast Asia and
emerging as the most important stategic of the global market for numerically con- investing in capital-intensive robots and
battlefield for any company operating on a trolIed machine tools. machines.
global scale. The author pinpoints four The Triad countries a11 have similar pro- • A strategy favored by American MNCs
trends - increasing capital intensity, soa- blems: mature economies, escalating social has been to develop a proprietary tech-
ring R&D costs, converging worldwide costs, aging populations, a growing scarci- nology and exploit it first domestically
consumer tastes and intensifying protec- ty of skiUed jobs, dynamic technologies and then abroad. Today, they don't have
tionism - which together make it imperiti- and escalating R&D costs. Triad markets, time to leisurely market new and proba-
ve for a company to have an inside presence too, are increasingly similar. Capital equip- bly much more expensive technological
in all three Tria,d regions. He looks at tbe ment until recently reflected its country of developments; many competitors pos-
steps some companies have already taken origin. Now the best-selling factory machi- sess comparable technological skills,
toward becoming a Triad power. nes have become almost identical not only making it almost impossible to sustain a
in apearance but in the skills required to technological monopoly; and the global
Three great market regions - Japan, Euro- operate them. There are 600 million consu- diffusion of new technology has become
pe and the United States - dominate the mers in the Triad with converging needs and a matter of months, not years.
world of multinational business today. The preferences. Gucci bags, Sony Walkmans • In the Triad markets, a new breed of con-
combined gross national products of Ja- and McDonald's golden arches are seen on sumers is emerging, similar in educa-
pan and the United States now account for the streets of Tokyo, London, Paris and tion, income, life style and aspirations.
30 percent of the free world's total. Add in New York. Companies like Seiko, Sony, Ca- These 600 million customers exhibit the
the GNP of the four biggest Western Euro- non, Matsushita, Casio and Honda are same basic demand patterns and can be
pean nations - the United Kingdom, West now routinely developing products for a treated for marketing purposes as a sin-
Germany, France and Italy - and the figu- world market, with minor modifications gle species. They all want the best pro-
re reaches 45 percent. Customers in the Ja- . depending on local tastes. ducts at the best price, regardless of ori-
pan-Europe-US Triad buy over 85 percent All this has far-reaching consequences far gin.
of a11 computers and consumer electronics multinational business. Quite simply, glo- • At the same time, protectionist pressures

DER WIRTSCHAFTSI GENIEUR 19 (1987) 3 5

 in each of the OECD countries are ding duties and insurance, is 13 percent of outlays for continuing production process
mounting, and economic nationalism is free on board (FOB), totally outweighing innovation, deep and immediate market
fueling a global trend toward bloc eco- the 10 percent savings in labor cost. penetration becomes neeessary. In the se-
nomies. miconductor and machine tool industries,
These interrelated forces have momentous Changed economies even domestic markets as large as Japan or
implications. the United- States have proved too small to
Typically, therefore, the economic tradeoff
will favor siting a production facility either support global-dass automated plants.
Capital-intensive operations where the product will be sold or where im- At the same time, to keep product Iines at-
Automation, robots, machining centers portant component parts are available. The tuned to the demands of the market and to
and numerical controls have vastly increa- same logic applies in industries where pro- be responsive to competitive challenges, it
sed productivity in the past decade. They duct life cyeles are short: constant changes is more vital than ever to be e10se to the cu-
have halved the labor content of traditional in molds, jigs, 100ls and components make stomer. Constant product innovation and
assembly operations, facilitated quick production locations remote from the core strongly entrenched distribution channels
changeovers in manufacturing processes engineering group very inconvenient. To- to reach prime markets may be key success
and made possible greater flexibility in gether with the lack of qualified workers factors. Once a product becomes, in effect,
plant siting. Microprocessors have swiftly and loeal managers, these factors have re- a eommodity that can be made by nume-
driven down the cost of computer power. duced the attractiveness of siting produe- rous competitors, and cost-reduetion, op-
Computer-aided design and manufactu- tion facilities in developing countries. The portunities are roughly the same for all par-
ring (CAD/CAM) are begetting a manu- Japanese chip-makers have been the latest ticipants, a superior distribution capability
facturing revolution. to learn at first hand what the color televi- that enables a company to selllarge volu-
The competitive repercussions of this shift sion (CTV) and textile industries discove- mes of nondifferentiated products at the
from labor to capital in production are alre- red earlier: cheap, inexperieneed labor lowest cost to the end user becomes the key
ady evident in the automobile industry. To must be trained and, onee trained and expe- to survival.
produce over 13 million vehieles a year, the rienced, does not stay eheap very long.
entire Japanese automobile industry (auto- Managers in automated industries who fail Costs of development
makers, component suppliers and automo- to recognize the implications of this shift The interaction between scientific discipli-
bile contractors) employs only 670,000 pe- from labor to capital will find their profit nes, between industries, and between indu-
ople - slightly fewer than the global work- margins severely squeezed. Automated stries and services is blurring existing eco-
force of the single largest US automaker. operations are better equipped to fight in- nomic power patterns. So rapid has the pa-
During the past decade, Toyota, while in- flation, sinee the ratio of labor cost to total ce of technological innovation and its com-
creasing its output 3 V2 times - to 3,3 mil- manufacturing is bound to increase when mercialization become in the high-tech in-
lion units a year - has, by reducing pro- sales are deelining or wages rising. Auto- dustries that a technological advantage can
duction man-hours, managed to maintain mated operations also res ist recession. be eroded virutally overnight.
its workforce at about 45,000. The produc- Highly automated Japanese facilities sueh Five vanguard hig-technology industries
tivity of Toyota's rival Nissan is Iikewise ab- as Yamazaki (machine tools) and Fujitsu (electronies, data processing, telecommu-
out twice that of its global competitors. Fanuc (numerical controls) are said to bre- nieations, fme ehemicals and pharrnaceuti-
These companies have changed the tradi- ak even at 10 pereent of capacity. Other ma- cals), accounting today for just over 6 per-
tionally labor-intensive auto industry into a nufaeturers Iike Toyota daim that they can cent of GNP in the OECD nations, eontri-
capital-intensive business. operate at 70 percent and still not lose mo- buted no less than 16 pereent of their eco-
The story is the same in electronics. During ney. nomicgrowth between 1975 and 1980. The
the past five years, the workforce required But this shift from labor- to capital-intensi- same hig-technology group averaged 1.49
to assemble a given consumer electronics ve production has a further consequenee. times the sales growth, 2.8 times the labor
product has been halved, and direct labor To achieve the economies of scale needed to productivity growth, and 2.75 times the
costs have been driven down to an average defray the heavy initial investment and the profit growth of six medium-technolo-
5 percent of total costs. Likewise, the semi-
conductor industry has become a fIXed-
Net profit/sales ratio·
cost, capital-intensive game, as opposed to
the variable-cost, »Iearning«-intensive bu-
siness of only five years ago. High tec:hnology industry Old \ine industry
The trend is even more prevalent in continu- Fine chemicals Steel
ous processing industries Iike chemicals, Electronics Light electric industry
Communications equipment Automobiles
textiles and steel, where automated control Office equipment Petroleum refining
systems enhance productivity and compe- Computers Textiles
titiveness. In two of Japan-s leading steel Pharmaceuticals Nonferrous metals
mills, Nippon Steel and Nippon Kokan Paper 81 paper products
KK, the labor tab hovers around 10 percent Fabricated metal products
Ceramic, earths 81 stone
of total costs. 5.1%
This shift from labor to capital intensity
shatters the mirage of low-cost labor in de-
veloping countries. Companies used to 10-
cate their operations in low-Iabor-cost
countries so as to bring down variable
costs. Third World labor costs still average
only a third of those in developed nations
- but when direct labor content accounts
for less than 10 percent of total manufactu-
ring costs, the costs of transport and insu-
rance can more than offset the advantages ·World leading companies: weighted average of 1980 and 1981.
of cheap labor. For example, the typical Source: Economic Aml/ysis 01 World Enterprise -International Comparison, MITI,_ 1982_
cost of transporting a color television set
from Southeast Asia to California, inelu- Exhibit I: High profits from high technology

6 DER WIRTSCHAFTSI GE [EUR 19 (1987) 3

gy-industries - iron and steel, automobi-
les, organic chemicals, textiles, nonferrous 100% Triad 51>.,. of consumption
metals, and pulp and paper. As can be seen
from Exhibit I, which compares the two
groups in terms of the net profit on saIes, it
has become very difficult to make money in 80
old-line industries that have become »engi-
neered commodities.«
As Exhibit II suggests, the industries criti-
cal to wealth generation in the 19805 are all
concentrated in Japan, Europe and the
United States. More than 80 percent of glo-
bal production and consumption, and 85
percent of patent registrations, are also ta- 40
king place in the Triad.
As the costs of developing and commercia-
lizing new technologies keep rising, compa-
nies are moving in three directions to gain 20
the benefits of integration and cross-fertili-
zation: (I) downstrearn, to control the in-
terface with the customer, (2) upstream, to
acquire new technlogies or protect sources
of expensive raw materials, and (3) hori- I I I I I
zontally, to share complementary techno- o 20 40 60 80 100%
logies with the object of creating or exploi- Triad 5har. of production
ring new market opportunities.
Average value added Level of techndlogy Capital
The fmt two moves are obvious. As global
• 32% High High
competition intensifies, the management
of fixed costs, particularly in R&D and di- o 27% Medium High-medium
stribution, becomes critical for creating • 19% Low Medium-Iow
wealth. The fixed cost of R&D, especially
the cost of developing breakthrough tech- Exhibit 11: Triad shares of free-world production- and consumption
nologies, is becoming so high that their glo- technological elements, ranging from me- word-processor entrants led by Wang, and
bal potential must be quickly exploited to mory microchips, image sensors and LA- even a personal computer manufacturer or
the fullest. But this demands the ability to SER emitters to modems, optical transmis- two.
penetrate deeply into all critical markets. sion devices and the time division multiplex
Few corporations - apart, possibly, from technique for the simultaneous transmis- Several of Japan's office automation lea-
the IBMs, Xeroxes and Kodaks of this sion of voice and data over the sampIe pho- ders are arming themselves for the coming
world - command a distribution network ne line. As a result, any company that wants global battle for dominance through inter-
capable of establishing a share of foreign to compete in office automation, robotics, national alliances with competitors. Bur-
markets comparable to their established or consumer electronics markets must con- roughs, which is trying to latch on to Hita-
domestic positions. For example, Toyota centrate on a few critical internal R&D pro- chi's technological edge, is already packa-
and Nissan, with domestic market shares jects and develop a supersensitive control- ging Fujitsu's highspeed facsimiles and is
of 38 percent and 28 percent respectively, tower function to constantly scan and mo- manufacturing Nippon Electric Compa-
hava a combined share of only 5 percent of nitor externally available technologies. In ny's (NEC's) optical character reading
the European Community (Bq and 12 per- order to avoid the risk of losing out totally techniques under a royalty license. Toshi-
cent of the US markets. Even Sony has only in a new game, a corporation may very weil ba's high-speed facsimiles are being distri-
an 8 percent market share in the US consu- cross-fertilize with a complementary com· buted in the United States by Pitney Bowes
mer television market, as against a 19 per- pany, domestic or foreign, across a wide and Telautograph, a subsidiary of the Ar-
cent share at horne. spectrum of the business system, from pro- den Group, and by International Telepho-
A natural strategie move, therefore, is to curement, design and manu facturing to sa- ne and Telegraph (ITT) in Europe.
concentrate on strengthening R&D and do- les and services. Even now, as the divergent Japanese con-
mestic distribution. Once a corporation de- The signposts of structural shifts on a tenders and giant European computer and
velops a unique technology, it can cross-li- cross-national basis are all there. Compa- communications firms, each with different
cense it to foreign counterparts in the other nies vying for a piece of the potentially luc- core strengths and economic bases, mingle
two regions of the Triad. Beside achieving rative computer and communications pie with the more precisely defined American
high penetration and reducing marketing are coming from all directions. One exam- entrants in the office automation fray, the
risks in difficult foreign markets, it can the- pIe is the technological patent exchange entire structure of the industry is under-
reby gain attractive new technologies in re- between the two leviathans in telecommu- going a major transition. Meanwhile, to
turn to be exploited in its own horne mar- nications and computers, respectively - build the volume needed to survive in what ,
kets. Such cröss-licensing typically doubles .Japan's Nippon Telegraph and Telephone promises to be a hotly contested share war,
or tripIes the potential of a technology, and (NTT) and America's IBM. In Europe, most major global players are tapping mar-
maximizes the contribution to the fixed America Telephone and Telegraph (AT&T) kets outside the Triad. Japan is pushing its
costs of domestic distribution through the is invading IBM's turf with a computer, office automation produets in Asia, while
handling of products and technologies of with help from Philips and Olivetti. Ameri- US and European manufacturers are vying
foreign origin. can contenders in the Japaneseoffice auto- for a beachhead in Latin America. And
mation equipment market today include all everyone is hastening to establish procure-
Cooperative initiatives the traditional and plug-compatible com- ment agents in Bast Asia to buy crucial
The third type of crossover is horizontal. In puter competitors, entrants form traditio- components and subassemblies such as ke-
today's high-technology industries, no sin- nal »office equipment« makers (such as yboards, disk drives, cathode ray tubes and
gle company can control all the critical Xerox and Hewlett-Packard), a host of printers.

DER WIRTSCHAFTSI GE IEUR 19 (1987) 3 7

 his dark blue suit, Regal shoes and Celine wer. In terms of per capita discretionary in-
Accelemting time fmmes necktie, carrying a Casio pocket calculator come, the purchasing power of Triad resi-
The rapid rate of technological dispersal is in his Mark Cross wallet, frequenting a ne- dents is more than 10 times that of dwelers
a distinct and important phenomenon of arby sushi bar for lunch, and commuting in in the less-developed countries (LDCs) and
its own. The basic research on the transi- a Celica, the typical New York businessman newly-industrialized countries (NICs).
stor, developed at Bell Laboratories in would not draw a second glance on the More than 94 percent of households in
1947, took over a decade. It was commer- streets of Düsseldorf or Tokyo. Youngsters Triad countries have television sets, as com-
cially introduced four years later, and anot- in Denmark, Germany, Japan and Califor- pared to about 60 percent for the NICs and
her six years passed before it was incorpora- nia are all growing up with ketchup, jeans less than 20 percent for the LDCs. One-
ted into the computer. The integrated cir- and guitars and worshipping the universal third of both Japanese and American con-
cuit, developed by Texas Instruments in »now« gods - ABBA, Levi's and Arpege. sumers have a high-school education or
1958, took three years to become a viable Within the Triad countries, in fact, age- better, as compared with 15 percent of the
product. group differences - the so-called genera- population in NICs, and even fewer in the
Now consider the accelerated time frame tion gap - are more pronounced than dif- LDCs. Their purchasing power, their edu-
for major developments in the semicon- ferences of taste across national bounda- cationallevel, and what they read and see
ductor during the past decade (Exhibit IIl). ries. unite the Triadians and distinguish them
It took two years in the United States for the The Triad consumption pattern, which is from the rest of the world.
chip to move from 4K- to 16K-bit random both a cause and an effect of cultural pat- Another factor making for uniform Tria-
access memory (RAM). Less than eight terns, is rooted largely in the educational dian demand patterns is similarity of tech-
months later the Japanese caught up with system. As more people learn to use tech- nological infrastructure. For example, over
the United States. It took two years for the nology, their differences tend to disappear; 50 percent of Triadian households have te-
United States to move from 16K to 32 K thus, educating people to higher levels of lephones, creating a hospitable environ-
chips, less than three months for Japan to technological achievement tends to eradi- ment for products like facsimile, telex and
catch up. Then, in 1978, Japan's Fujitsu le- cate differences in life styles. The nearly digital data transmission/processing
apfrogged US suppliers and introduced the universal penetration of television has ac- equipment. High ratios of physicians to po-
64K microchip with a 3-month lead. In celerated the trend. pulation stimulate the demand for phar-
1983, the Japanese started sampie ship- A prime force behind the similarities and maceuticals and medical electronics. Weil
ment ofthe 256K N-MOS dynarnic RAM, commonalities in the demand and life pat- developed highway systems foster the rapid
and early in 1984 the started its commercial terns ofTriad consumers is purchasing po- penetration of radial tires and sports cars
production. American firms are lagging
behind by about a year on average. Computers
The story is much the same in computers.
In 1952, when IBM introduced its 701 mo- Date Generation Comparable model
del, it had four years' lead before competi- 1952 IBM 701
tors caught up. By 1980, when IBM intro-
duced its powerful 308X model, it met 11 IBM 1401
'959
competition head on. The rate of diffusion
has become so fast that no one can hold a
'964 111 IBM 360
technological monopoly for long.
The strategic implications are threefold.
111'/2 IBM 370
First, technologically advanced companies '970
cannot rest on their laureis. Second, chal-
lengers with products may never- '977 111'/2 IBM303X
theless have the c10ut to erode the leader's
market share. Third, it costs so much to de- '979 IV 3/4 IBM 4300
velop a technologically advanced and dif-
ferentiated product that the producer must '980 IV 3/4 IBM 308X 0
be able to sell to the entire world simultane-
ously in order to amortize the heavy front-
end investment. Companies that choose to Integr.ted circuits
develop domestic markets first before
going overseas may find themselves totally Date ModeVproduet US lead/lag vs. Japan (years)
blocked out by well entrenched competi- 1947 Transistor 5
tors set to invade their own home markets.
1961 Integrated circuit 2
Universal users
Whether it produces capital equipment or 1970 lKRAM
. consumer goods, a company that ignores
the universal market potential of the Triad
'973 4K
does so at ist peril. Not too long ago, capital
equipment exhibited c1ear cultural distinc-
tions: West German machines reflected '975 '6K
that nation's penchant for craftsmanship,
American equipment was often extrava- 1978 64K 3 months
gant in its use of raw materials, and so on.
1.0[----
Today, the best-selling factory machines '983 256K
have lost these distinguishing »art« ele-
ments. They have become alike in appea- -Time between US development and Japanese catch·up.
rance and in the level of skills they require. Source: Data horn Hitachi and Matsushita IYasuo Okamoto); Computop;M (April 1981}; IOctober 1979).
Even more conspicuously, consumers in
the Triad have become increasingly alike. In Exhibit IU: TechnologicaJ lead times- between Triad countries

8 DER WIRTSCHAFTS) GE IEUR 19 (1987) 3

- higher value-added products based on a Paradoxically, this fragmentation of deve- spots - stands a good chance of becoming
higher level of technology. loped markets is taking place (and seernin- an effective Triad power. The first condi-
Once these commonalities are recognized, gly even intensifying) at a time when the re- tion will ensure that it recovers its invest-
universal products can be designed (Exhi- sidents of the Triad are emerging as a nearly ment in unique and diversified products;
bit IV). The increasing commonality of li fe homogeneous buying group. To respond to the second, that it avoids surprises from fo-
styles in Triad countries means that the these two contrary phenomena, pragmatic reign competitors, or from domestic com-
company that comes up first with a univer- business strategists must simultaneously petitors forrning alliances with foreign
sal product has the best chance of winning develop a Triad perspective and accelerate companies. Failureto satisfy these two con-
the global race für consumer acceptance. their companies' »insiderization« in key ditions allows a company to slip into a vi-
Companies like Seiko, Sony, Canon, Mat- markets. cious cycle of decline: giving up its main
sushita, Casio and Honda now routinely market segments, concentrating on relati-
develop products against a global perspec- vely peaceful niches, confining its activities
tive. Their product designers spend as Triadic strategies to the domestic market, repeating the »cost
much as half their time abroad talking di- As we have seen, the Japan-Europe-US reduction and removal of overhead« cycle,
rectly with their customers and dealers. Triad is where the major markets are. It is and ultimately losing its position asa major
When they return, they design and synthe- where the competitive threat comes from. contender in the global marketplace.
size their global product based directly on It is where new technologies will originate. The most significant advantage of beco-
their personal impressions. And, as competition becomes keener, it is ming a Triad power, however, is not simply
This concentration of consumer and capi- where preventive action against protectio- to stop this vicious cycle, but to pursue a po-
tal goods users within Japan, Europe and nism will be needed most. Thus, in order to sitive and more offensive strategy. Knowing
the United States is probably the primary take advantage of the Triad's markets and the basic desires of Triad consumers, the
trigger of global high-technology competi- emerging technologies and to prepare for company ean come up with an universal
tion. The Triad is where the main action iso new competitors, every multinational cor- product. Or, having'come up with a highly
poration must seek to become a true insider competitive basic product at horne, it can
Neo-protectionism in all three regions. tailor features and looks to loeal tastes.
Most Free World economies were in a seve-
Marbt-by·marttet approach Globel product epproadl
re slump in the early 1980s. High un-
employment reduced purchasing power, le-
ading to slowdowns in the automobile, con-
sumer goods and construction industries,
and in dependent businesses such as steel
and component parts. These econornic dis-
locations made it very difficult for national
governments to resist political pressures for
short-term remedies in the form of trade
barriers. Some countries put up quotas and
duties against all imports, others against
imports of specific products corning from
particular countries.
In consequence, if a company is not a re-
cognized »insider« in a country important
to its share growth, it may find the doors to
that market tightly closed. The outsider's
trade base is always fragile, whereas the in-
sider's position is secure. For instance, So- ·600 mimon Triad inhabitlnts
ny, which has a sizable plant in San Diego,
Exhibit IV: Setting strategies 10 capitalize an commonalities
escaped the quota and surcharge litigations
and much of the ill-will directed against ot- An early presence in a new market provides . And it can market simultaneously to 600
her Japanese color television producers du- clear advantages. When Tokyo Electric miHion people.
ring the uproar over Japanese color televi- Company first introduced its electronic With rnighty salesforces in each ofthethree
sions in the United States. cash register and began to eat away at Na- lhad regions, either their own or a part-
Of course, governmental regulations and tional Cash Register's (NCR's) market sha- ner's, companies can strike into the market
media headlines don't necessarily reflect re in Japan, NCR's subsidiaryoperation in in a relatively short time, preempting both
the attitude of the public at large. The Japa- Japan was able to switch from electrome- local and other global competitors and rea-
nese government may take a tough negotia- chanical to electronic technology to stern lizing high returns on their initial invest-
ting stance with. the United States on beef the erosion before its domestic position was ment. With this profit, they ean reinvest in
and orange quotas, but that doesn't mean severely threatened. Xerox's preerninence more sophisticated and complex facilities
that Japanese consumers are any less keen in Japan helped it anticipate and respond to and/or R&D, redoubling their competitive
to buy American oranges or beef. And, de- low-end technology being introduced by muscle. Should any local company come
spite quotas, the American people clearly the Japanese plain paper copier manufac- up with a high-potential new product, the
like Japanese color televisions and auto- turers. Texas Instruments was able to pro- Triad power can swiftly copy it and
mobiles. duce 64K memory chips in Japan quickly, preempt the local competitor's opportuni-
Quite simply, customers everywhere want while other US companies were fighting off ties in the other two Triad markets. With
the best product for the price from anywhe- the intrusion of Japanese serniconductor the profit thus generated, it can then com-
re in the world. That is the reason behind houses in the United States. Each of these fortably engage in a head-to-head battle
the increase in transnational trade, and companies was able to adapt quickly to an with the originating company on its own
hence in trade friction and artificial obstac- emerging competitive situation by virtue of turf. That company must generate funds to
les to the transnational flow of goods. That its insider position. fight back, although its profits from dome-
is why it is so important for a global corpo- A company that can ensure it has equal pe- stic sales may be hardly enough to recover
ration-to-be to establish a de facta insider netration and exploitation capabilities in its development and launching costs.
position. each of the Triad regions - and no blind The advantages of knowing the Triad cu-

DER WIRTSCHAFTSI GE IEUR 19 (1987) 3 9

 >
stomers and competitors as a true insider
are so clear that the issue is not whether a
company should become a Triad power,
but how.
PhysicallocMion
Tbe road to Triad power ""'------
Close Remote
Three vehicles can be used, alone or in com-
bination, to become an effective Triad insi-
der: wholly-owned subsidiaries, joint ven-
tures, and consortia.
1. The wholly-owned subsidiary
This, the traditional MNC vehicle, needs
no detailed discussion, but for successful
implementation in the Triad context three ;:
points should be borne in mind: first, a »re-
gional« rather than country-Ievel structure
should be established to share common re-
..,.;;:.
::l

sources; second, headquarters should play

the role of strategic lubricator across key re-
..
c,-
e:
S-
gions ofthe Triad rather than acting prima- !

."
rilyas a controller; and finally, equal »citi-
zenship« should be given to each of the
Triad regions - and to any region outside
the Triad where the company operates on a
major scale (we could call this a »tetrahe-
dra!« model).
For exarnple, the German chernical giant
BASF, which recognized in 1981, preserves
the regional grouping of its nonstrategic
areas, but treats the key strategic countries
completely separately. The heads of
BASF's US, Japanese and Brazilian subsi-
diaries (Brazil is an important »Hinter- Exhibit V: Deciding on consortium partners
land« for the company) each report directly 16.5 percent, with the rest traded on the To-
to a member of the executive board. Tailor- kyo Stock Exchange, has grown to be No.
made policies are worked out for each of 2 in the Japanese process control and in- Too often, however, joint ventures fail be-
the three areas. This kind of organization is strumentation field. Honeywell has been cause of differences between the partners.
one reaJistic model for a multinational ent- able to inject needed technologies, and the Since a joint venture is a legal entity with
erprise. Japanese partner h"s supplied a stable ma- equity sharing, the partners must decide
Despite Japan's critical strategic difference nagement team. formally how to-shäre profit (or loss) and
from other Asian countries, too many mul- American-Japanese joint ventures such as where arid how to reinvest for the future.
tinationals consign it to the Far East De- Yamatake-Honeywell, Caterpillar-Mitsu- Unless their management or resource alJo-
partment or the Pacific Basin Division of bishi, Surnitomo-Minnesota Mining and cation can frustrate common goals. All
the International Business Sector, with the Manufacturing (3M), and Fuji-Xerox are concerned need to understand at the outset
head of Japanese operations five levels be- all ranked among the top three in their re- that making a success of a joint venture in-
low the CEO - literally, in some cases, be- spective industries. Ebara-Infilco, owned volves at least as much pain and effort as
low the level of a sales manager in Denver. until recently by Westinghouse's Infilco Di- - building a new greenfield plant. Like a mar-
Japanese companies make the same mista- vision, is the biggest firm in the Japanese riage, it will demand a lot of effort by both
ke when they send a deputy general mana- water treatment industry. This is doubly parties over a long period that may bring
ger form Production Planning to head up astonishing because more than 90 percent changes in the environment, in their relati-
their US operations. This is the quickest of this company's work was in the public ve strengths.
way for a multinational corporation to un- sector, which is notoriously intolerant of Unlike a marriage, though, a joint venture
dermine its prospects of succeeding as a outsiders. is constrained by numerous legal contracts
Triad power. The French companies Schlumberger and and forms of capital participation. Instead
Michelin both have commanding positions of talking out their frustrations and diffe-
2. Tbe joint venture in the United States. And another cosmo- . rences, the partners are frequently aIl too
Joint ventures are normally designed to ta- politan French company, Air Liquide, quick to point out each other's violations
ke advantage of the strong functions of the owns 64.2 percent of Teisan, which is pu- of these legal contracts. Often, critical mat-
partners and supplement their weak func- blicly traded on the Tokyo Stock Exchange. ters tend to be decided by vote, based on the
tions, be they management, research, or Philips has a long and successful history of partners' respective proportions of equity
marketing. The recent announcement of a joint ventures with Matsushita in electronic holding.
joint-venture plan in small business com- components. Sirnilarly, Caterpillar's joint In my observation, majority voting seldom
puters between Matsushita and IBM is a venture with Mitsubishi Heavy Industries represents good business judgment and re-
good exarnple of resource sharing, with has given it real staying power in the rather arely favors entrepreneurial decisions. In-
each company supplementing the other's conservative earth-moving equipment deed, if a voting process is needed to decide
functional strengths. This joint venture al- market of Japan. High Voltage Industries on critical matters, the chances are the joint
so testifies that even the biggest companies (HVI), a 50 : 50 joint venture between GE venture has aIready failed. To put it another
in two regions 0 f the Triad cannot fight and and Hitachi in gas switch gear in Philadel- way, ifyour company needs the world's best
win the electronics war single-handed. phia, uses GE's rnighty pooled salesforce lawyers to speil out alI the possible details
Yamatake-Honeywell, in which Honeywell for utility customers and Hitachi's advan- and countermeasures in potential disputes,
owns 50 percent, the Yasuda group about ced gas diffusion technology. you lack a sound basis fOT the joint venture.

10 DER WIRTSCHAFTSINGENIEUR 19 (1987) 3

Two companies with »natural« fit are a ra- ring resources and swapping products to message is: Enlarge your search for sources
rity. Extremely careful planning, and a lot avert development risk. lnstead of geogra- and potential contributors beyond your
ofgiving, will be needed before the partners phically dose competitors joining forces, traditional neighborhood »shopping are-
can begin thinking about jointly harvesting distant competitors are merging and sha- as«. Go global for the hunt. If your tradi-
the fruits. ring functions such as R& D and produc- tional rival is going global, then your only
In short the joint-venture route can be dif- tion: British Leyland produces a medium- option is to do the same - but to it beuer.
ficult b;cause it involves matching two dif- sized Honda in the United Kingdom, while
ferent corporate cultures by the artificial Nissan produces Volkswagen's Santana Practical imperatives
means of legal contracts. Ownership and model in Japan.
control issues, which are fundamentally at Many examples of emerging cons<;>r- The organizational implications of inter-
odds with the spirit of pragmatic, entrepre- tia can be seen today in such key IOdustnes national consortia are complex. Collabora-
neurial business, come into the picture. Un- as automobiles, semiconductors and steel. tive arrangements with traditional compe-
less the corporation is fully prepared to The rationale is to seek partners in other titors are seldom welcomed by rniddle ma-
maintain the spirit of the joint venture Triad regions to supplement functional nagers, whose interest is to show top mana-
without having recourse to contract, the shortcomings in order to survive and even gement that they are as capable as anyone
long-term viability of the enterprise is expand in home regions. Typically, these else. One essential step, therefore, is to con-
questionable. consortia are formed to share or trade cer- duct a good internal communications
Companies that choose the joint-venture tain upstream functions such as R&D, pro- paign to explain the intent of the consortl-
route to becoming a Triad power will be wi- duction and technology, and to stay abreast um. BuildirJg executive relationships on se-
se to follow a few simple guideIines: of the leading-edge competitors. Someti- verallevels between the partners, and posi-
• Make sure there is at least one key top mes they involve swapping certain product tioning a strong liaison officer at the top,
management sponsor on each side of the categories in order to take sy- are also vitally important. Too many con-
venture, each fmnly convinced that the nergies made possible by shanng cntlcal sortia have been launched on a great wave
undertaking is meaningful and will be functions. Rarely does a partner give up an ofenthusiasm, only to fail subsequently for
good for his company. entire function. lack of any built-in means of sustairJing
• Keep these sponsors responsible for the Most companies, while generously forgJ-
This form of cooperation is becoming in- ving themselves their own mistakes, have.a
joint venture for a decade at least. creasingly popular in industries once
• Ensure active cross-fertilization and fre- terrible habit of recriminating over thelr
verbial for tough competition. An executl- trading partner's errors. Maturity and di-
quent mutual face-to-face ve vice president of a large US chemical
tions at the top management, operations plomacy are required in a consortium su-
company recently visited several Japanese stain .constructive intercompany relatlon-
management and workforce levels. chemicals frrms to explore areas of poten-
• Above all, communicate rather than ships.
tial synergy. To his surprise, more than half Any corporation entering into consorti.um
control. of them expressed strong interest in sharing
On the organizational side, a joint venture arrangements will need to keep two pomts
various resources. Many global enterprises in mind:
must be dearly positioned relative to 00- today are willing to cooperate with their
sting divisions. Many joint ventures are for- • Instead of cautious, suspicious and di-
Triad-region competitors rather than fight stant alliances of convenience, it will
med by a handful of top executives and them off in destructive trade wars.
staff members, and their position in rela- need to allow positive, proacitve and
Consortium alliances between competitors strategic interlinkages - ultimately, if
tion to the OOsting corporate functions and in the same Triad region should be avoided,
operating divisions is often undear. With- not at the outset - among all the partici-
however. Distant foes can be real friends, pating partners.
out full cooperation or resource realloca- while dose cousins can be enemies (Exhibit
tion, the joint venture becomes a stepchild. • It must be prepared to gradually adjust
V). Most of the Europe'!Jl transnational
3. The consorüum . its business system and terminology in
mergers of the 1960s, involving links be-
Traditional multinationals tried to do eve- order to minirnize friction among the
tween similar companies, failed. Because consortium members in communication
rything on their own as they entered each they were too dose, they could not work as
market. roday, the skills and resources re- and agreeing on critical maUers. Smooth
partners and ended up at loggerheads. communication among the partners at
quired to compete worldwide have increa- The most useful ground rule in forming a
sed so enormously that they can no longer all times and at all levels of management
consortium is to maximize the contribu- is vital to the long-term success of a Triad
»go it alone«. All but a very few must rely tion to critical fixed costs. If R&D becomes
for success on their ability to develop and consortium.
expensive, make sure the resulting products
enhance company-to-company relation- are sold all over the world by licensing them
ships, particularly across national and cul- to consortium allies, even though you may Marks of a Triad Power
tural boundaries. have some selling capabiliteis of your own Whether it has achieved »insider« status
Given the difficulties a company faces in in certain regions. ifyou have a costly, state- through wholly-owned subsidiaries, joint-
penetrating the major Triad markets on its of-the-artproduction facility that could venture entities or loose consortium allian-
own or in adapting its established corpora- operate at low cost if fully utilized, then you ces, a true Triad power can be identified by
te cu'lture to establish an insider position in should think about selling your products a few distinctive characteristics:
the other regions of the Triad, the strategic through any company with strong distribu- I. WeIl established management systems in
benefits of forming a consortium of true tion capabilities, to original equipment each of the lHad regions.
insiders in the respective key regions are ob- manufacturers or under your own brand 2. A full set of functions (possibly supple-
vious. Such a consortium can enable each name. If you have a well-developed sales- mented by headquarters or other regions
member company to enjoy almost instant force and/or distribution charmeI, but your where that makes strategic sense), fully
access to a vast number of potential custo- laboratories cannot pump out enough new responsive to local conditions.
mers, and gain vital insight into the products, then think about importing at- 3. Managers who are wholly farniliar with
sing, manufacturing, marketing, distnbu- tractive products made by other compa- local and regional customers and com-
tion, personnel and fmancing aspects of nies. Most product lines acquire a larger va- . petitors.
operating everywhere in the tough but Iuc- lue-added increment during distribution 4. Continuity of management, mostly with
rative Triad markets. than in production. home-grown, overseas-trained person-
All these measures aim at maximizing the nel.
Facing facts product's contribution to fixed. costs by 5. Swift, autonomous decision making,
The trend of recent consortia is toward sha- drawing on a global range of options. The fully synchronized with the rest of the

DER WIRTSCHAFTSI GENIEUR 19 (1987) 3 11

 -. . . .

. . .. . ..... . .... ' \ .

corporation. (Corporate headquarters,
though fully informed, seldom imerfe-
res with regional management.)
6. Strong »staying power« in the key mar-
kets during periods of difficulty, and the
capacity to come up with creative solu-
tions to problems of market change.
7. Constant active communications - by
telephone, personal visits and long-term
exchange of people - within the corpo-
ration, at the interfaces with affiliated
companies, and with headquarters.
- Cl\1I T .•. ,,,lU' -
8. Intolerance of the customary »it's out of ke off the allocation of resources. Even a tions of the industry. These are the sensitive
my control« excuses for shortcomings technical tie-up will not bear fruit unless zones where trends can be detected first and
and mistakes. both parties are willing to exchange people where insiders can pick up market signals
9. Significant presence and weight in the and experiment together, and prepared for far ahead of competitors based elsewhere.
communities where its operations are 10- plenty of »nice tries«. Triad insiders in Japan were the first to pick
cated. By the same token, coprorate headquarters up such subtle signals as the entry of Japa-
IOA corporate headquarters that functions should takeevery opportunity to act to faci- nese sewing machine companies into the
simultaneously in three roles: as resource litate and lubricate the implementation electronic typewriter business, or that of
mobilizer, as interface lubricator and as strategies of consortia and/or joint ventu- Sumitomo and Furukawa Copper Wire
strategie sensitizer. res, rat her than sit and wait for results to co- Works into fiber optics.
The »resource mobilizer« role is self-evi- me in form the four corners of the world. A true Triad insider can extract the strategic
dem in the case of wholly-owned subsidia- The final critical headquarters role is that essence from these »sensitive zones« on be-
ries. But even if a company takes the joint- of strategie sensitizer. If you are in the offi- half of its Triad partners. In its role as stra-
venture or consortium rout to Triad »insi- ce automation industry, you had better be tegie sensitizer, headquarters will act to ma-
der« status, it must be prepared to allocate in California or Japan so that you can feel ximize corporate wealth by fmding oppor-
substantial funds and human resources to the »breathing« ofthe business. Ifyour are tunities and eliminating blind spots over
the venture with its partners. These alterna- a semiconductor manufacturer you need to the emire Triad and its submarkets. It will
tives to the on-your-own approach reduce visit Hamilton-Avnet, a large microchip di- pick up critical information in one region
the necessary commitment of management stributor in the United States, or Kyushu, and preempt the opportunities of competi-
resources, but they must not be used to cho- Japan's »silicon island«, to feel the vibra- tors in other regions. It will be alert to sig-
nals of structural change in consumers' de-
sires, so that the cornpany can come up with
new product and/or service concepts. It

ß
P
D
(@N0
r-.
ös.".;oh;och.
will be able to identify and link up with dy-
namic new partners, catching its domestic

L .....
Beratungsunternehmen mit
internationalem Know-how
and global competitors off guard.

Challenge and opportunity

To surn up: Old strategies and organizatio-
• STRATEGISCHE PLANUNG nal frameworks designed to reach 200 mil-
lion customers at most have become obso-
lete in the Triad's new and dynamic markets
• ORGANISATION of 600 million people. where consumers
and industrial customers alike are beco-
ming more and more homogeneous in their
• LOGISTIK basic needs.
This growing universality of user characte-
ristics and requirements gives global enter-
• OBJEKTPLANUNG prises a powerful incentive to find ways of
(Produktion, Lager, Büro) doing business in all parts of the Triad. But
neither consurners nor industrial custo-
mers can be captured at a single sweep,
• PROJEKTMANAGEMENT using a monolithic approach and a single
business system around the worId. Regio-
nal differences in business practice and in
• AUSWAHL UND AUFBAU the lecal infrastructures of distribution,
VON INFORMATIONSSYSTEMEN personnei, production aild engineering,
coupled with the political pressures of pro-
(PPS, CAD/CAM, Büroautomation) teetionism, make it necessary for the global
enterprise to establish a true insider posi-
tion in each of the key Triad regions. To suc-
ceed, it must be prepared to change its stra-
DER RICHTIGE WEG MIT IHREM CONSULTER tegy, its structure and its traditional culture
and value system, transforming itself into a

RGIPLRN
A: 1150 Wien, Loeschenkohlgasse 6, Tel. (0222) 92 34 51-0
new global entity with a significantly diffe-
rent chemistry and blood type - a Triad
power.

---"y----
12 DER WIRTSCHAFTSI GENIEUR 19 (1987) 3