US Firms Can Learn From Japan

INTERVIEW JOSEPH GORMAN

DRAMATIC changes will take place in the United States and world automobile industry within this decade, and only the fittest will survive, a leading American industrial executive predicts.Joseph Gorman, chairman and chief executive officer of TRW Inc., says the auto industry will be increasingly "a global industry with global cars, using the same or very similar technology in every region, with global suppliers." He sees no way that 14 existing European carmakers, or 10 Japanese ones, can survive into the 21st century. "They will merge, or consolidate, or go out of business, and there'll be a handful left." As for the US Big Three, he sees two surviving, "but probably not three." Mr. Gorman spoke in a Monitor interview at TRW's park-like headquarters building in Cleveland. The company, which was founded by five Clevelanders in 1901 with total capital of $2,500, has grown into a world-girdling industrial giant that racked up $8.2 billion in sales last year from three core businesses: auto parts, space and defense, and information systems. Auto parts account for 46 to 47 percent of sales, and space and defense for 42 to 43 percent. Whereas most space- and defense-related sales are domestic, auto parts are a truly global part of TRW's business, with plants in Europe, Japan, South Korea, and elsewhere. Forty percent of auto parts sales are in the US, 40 percent in Europe, and 20 percent elsewhere, including Japan. Gorman estimates that last year TRW sold $400 million worth to Japanese carmakers in Japan, Europe, and the US. He hopes to doubl e the figure in the next three to four years, with air-bag systems a promising part of the sales mix. As with car companies, so with partsmakers, "you'll find people dropping out of the business, and being absorbed and consolidated by others." At the end of the process, Gorman sees "a relative handful of large, worldwide auto- parts suppliers. Some will be Japan-based, some will be Europe-based, some will be US-based." Gorman, a lawyer who has spent most of his career with TRW and who became CEO in 1987, is positioning his company to be one of the global survivors - in the US, in Europe, and even in the notoriously difficult Japanese market. He admires Japan's manufacturing prowess and says without hesitation that US factories have much to learn. At the same time, he says Japan faces a critical crossroads: whether to continue slowly and reluctantly opening its domestic market in response to pressures from the US and Eu rope, or to show the leadership expected of an economic superpower. "Isn't it time for you [the Japanese] to step up to your obligations as a super-economic power - to provide world leadership on issues of trade?" Gorman asks. "For there to be free and fair trade around the world, every regional and major national system must be fundamentally the same, or it won't work." "If the Japanese don't materially alter their system to make it fundamentally the same as North America and Europe, then both North America and Europe will begin to erect trade protection barriers ... and that will harm all regions of the world." Gorman says he does not like the phrase "a level playing field," but that Japan does play by different rules, not only as regards an open market, but as regards "antitrust laws, free-trade laws, taxes, the sponsorship by the government of certain development, cooperative research development between competitors at pre-competition stages, and a whole long list of policies, laws, regulations, and practices." Gorman is a member of the Import Board the Japanese government has set up to recommend market-opening measures. In a speech at the board's first meeting in April, he proposed that Japan articulate a national "import vision" with industry-specific and company-specific import targets. He asked the Japanese government "to take concerted, positive action" against anticompetitive practices and carry out "vigorous enforcement of the Anti-Monopoly Act. Gorman recognizes that in recent years the Japanese have substantially increased imports of foreign goods. But he notes that Japan's trade surplus with the US is still in the neighborhood of $40 billion a year. "Two-thirds of that trade imbalance is attributable to automobiles and automobile parts, and the rest is attributable to consumer electronics. Everything else is in balance, more or less." That kind of gap is not sustainable, politically or economically, Gorman says; hence his sense of urgency. But if this CEO seeks fast action from the Japanese, he is equally concerned about recovering American competitiveness in the world market. "The principal reason we're not competitive is attributable to management," he says flatly. "Too much short-term thinking. Not enough focus on the customer, on quality for the customer. Not enough focus on lean production techniques, on doing it right the first time. Not enough focus on advanced manufacturing processes, not enough focus on research and development and product development." This is where he thinks US manufacturers could learn from Japan. The Japanese have a system known as keiretsu, under which a carmaker like Toyota has very close relations with its principal suppliers. That system has been criticized as excluding outsiders. Gorman says, however, that compared to the American system of short-term, arms-length relationships between carmakers and suppliers, the Japanese system has much to commend it. "There is a sharing of interests, a common sense of purpose, a recognition that they are true partners. It eliminates or dramatically reduces redundancy, because the carbuilder will rely almost totally on the supplier for technology, for design, for prototype development, while the supplier, knowing that he's going to be around for the long term, is more willing to put expense, investment into research development, laboratories, bricks and mortar, high-quality process, machinery, and equipment. Much more so than in this country, where at the whim of the [the carbuilder], the supplier may be there for five years, and out the next day - totally out." Japan has no monopoly on doing things right, Gorman says. The US has higher worker productivity than Japan, it has the best system of higher education, it leads Japan in development of technology. "So there's much right with America, but there's much wrong also, and we have to correct those things that are wrong, and it's okay, I think, for us to look at the Japanese and say, 'Hey, during the last 20 years the Japanese have done some things a whole lot better than we have.