NEC Corporation

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NEC Corporation

5-33-1, Shiba
Minato-ku
Tokyo 108
Japan
(03) 454-1111

Public Company
Incorporated: 1899
Employees: 104,022
Sales: ¥3.08 trillion (US$24.66 billion)
Stock Index: Tokyo Osaka Nagoya Amsterdam Basel Frankfurt Geneva London Zurich

NEC is the largest manufacturer of semiconductors in the world. It is also one of the world’s largest suppliers of telecommunications equipment. Like other manufacturers of telephone equipment, NEC has seized the opportunity to combine its background in communications with a new and largely self-achieved position in computer technology. As the world’s corporations enter the 21st century, they will rely more than ever on the ability to manage huge amounts of information. NEC is working to ensure that it can provide them with that ability.

The Nippon Electric Company, as NEC was originally known, was first organized in 1898 as a limited partnership between Japanese investors and the Western Electric Company. Western Electric recognized that Japan, which was undergoing an ambitious industrialization, would soon be building a telephone network. With a solid monopoly in North America as the manufacturing arm of the Bell system, Western Electric sought to establish a strong market presence in Japan, as it had done in Europe. NEC went public the following year, with Western Electric a 54% owner. In need of a plant, NEC took over the Miyoshi Electrical Manufacturing Company in central Tokyo.

Under the management of Kunihiko Iwadare and with substantial direction from Western Electric, NEC was at first little more than a distributor of imported telephone equipment from Western Electric and General Electric. Iwadare, however, set NEC to producing magneto-type telephone sets and secured substantial orders from the Ministry of Communications for the government-sponsored telephone-network-expansion program. With steadily increasing, and guaranteed, business from the government, NEC was able to plan further expansion. In September, 1900 NEC purchased from Mitsui a site at Mita Shikokumachi, where a second NEC factory was completed in December, 1902.

In an attempt to heighten NEC’s competitiveness with rival Oki Shokai, Iwadare ordered his apprentices at Western Electric to study that company’s accounting and production-control systems. Takeshiro Maeda, a former Ministry of Communications official, recommended that NEC emphasize the consumer market, since he regarded the government sales as uncompetitive and limited. Still, government sales were the company’s major vehicle for expansion, particularly with Japan’s expansion into Manchuria after the 1904-1905 Russo-Japanese War.

Japan’s Ministry of Communications engineered an aggressive telecommunications program, linking the islands of Japan with commercial, military, and government offices in Korea and Manchuria. As was Bell in the United States, NEC was permitted a ’”natural,” though imperfect, monopoly over cable communications in Japan and its territories. NEC opened offices in Seoul in 1908, and Port Arthur (now Lüshun), China in 1909.

A serious economic recession in Japan in 1913 forced the government to retrench sponsorship of its second telephone expansion program. Struggling to survive, NEC quickly turned back to importing—this time of household appliances like the electric fan, a device never seen before in Japan. As quickly as it had fallen, the Japanese economy recovered in 1916, and the expansion program was placed back on schedule. Intelligent planning effectively insulated NEC from the effects of a second serious recession in 1922; NEC even continued to grow during that time.

Around this time, Western Electric’s international division wanted to create a joint venture with NEC to produce electrical cables. NEC, however, lacked the industrial capacity to be an equal partner, and recommended the inclusion of a third party, Sumitomo Densen Seizosho, the cable-manufacturing division of the Sumitomo group. A three-way agreement was concluded, marking the beginning of an important role for Sumitomo in NEC’s operations.

On September 1, 1923 a violent earthquake severely damaged Tokyo and Yokohama, killing 140,000 people and leaving 3.4 million homeless. The Great Kanto Earthquake also destroyed four NEC factories and 80,000 telephone sets. Still, the government maintained its commitment to a modern telephone network and supported NEC’s development of automatic switching devices.

NEC began to work on radios and transmitting devices in 1924. As with the telephone project, the Japanese government sponsored the establishment of a radio network, the Nippon Hoso Kyokai, which began operation with Western Electric equipment from NEC. By May, 1930, however, NEC had built its own transmitter, a 500-watt station at Okay ama.

In 1925, American Telephone & Telegraph sold International Western Electric to International Telephone & Telegraph, which renamed the division International Standard Electric (ISE). Partially as a result, Yasujiro Niwa, a director who had joined NEC in 1924, felt NEC should lessen its dependence on technologies developed by foreign affiliates. In order to strengthen NEC’s research and development, Niwa inaugurated a policy of recruiting the best graduates from top universities. By 1928 NEC engineers had completed their own wirephoto device.

The Japanese economy, which had been in a slump since 1927, fell into crisis after the Wall Street crash of 1929. With a rapidly contracting economy, the government was forced year after year to scale back its telecommunications projects. And while it restricted imports of electrical equipment, the government also encouraged greater competition in the domestic market. Decreased subsidization and a shrinking market share reversed many of NEC’s gains during the previous decade.

The deployment of Japanese troops in Machuria in 1931 created a strong wave of nationalism in Japan. Legislation was passed that forced ISE to transfer about 15% of its ownership in NEC to Sumitomo Densen. Under the directorship of Sumitomo’s Takesaburo Akiyama (Iwadare had retired in 1929), NEC began to work more closely with the Japanese military. A right-wing officers corps was at the time successfully engineering a rise to power and diverting money to military and industrial projects, particularly after Japan’s declaration of war against China in 1937. NEC’s sales grew by seven times between 1931 and 1937, and by 1938 the company’s Mita and Tamagawa plants had been placed under military control.

Under pressure from the militarists, ISE was obliged to transfer a second block of NEC shares to Sumitomo; by 1941, ISE’s stake had fallen to 19.7%. Later that year, however, when Japan went to war against the Allied powers, ISE’s remaining share of NEC was confiscated as enemy property.

During the war, NEC worked on microwave communications and radar and sonar systems for the army and navy. The company took control of its prewar Chinese affiliate, China Electric, as well as a Javanese radio-research facility belonging to the Dutch East Indies Post, Telegraph and Telephone Service. In February, 1943, Sumitomo took full control of NEC and renamed it Sumitomo Communication Industries. The newly named company’s production centers were removed to 15 different locations to minimize damage from American bombings. Despite this, Sumitomo Communication’s major plants at Ueno, Okayama, and Tamagawa were destroyed during the spring of 1945; by the end of the war in August, the company had ceased production altogether.

The Allied occupation authority ordered the dissolution of Japan’s giant zaibatsu (conglomerate) enterprises such as Sumitomo in November that year. Sumitomo Communications elected to re-adopt the name Nippon Electric, and ownership of the company reverted to a government liquidation corporation. At the same time, the authority ordered a purge of industrialists who had cooperated with the military during the war, and Takeshi Kajii, wartime president of NEC, was removed from the company.

NEC’s new president, Toshihide Watanabe, faced the nearly impossible task of rehabilitating a company paralyzed by war damage, with 27,000 employees and no demand for its products. Although it was helped by the mass resignation of 12,000 workers, NEC was soon constrained by new labor legislation sponsored by the occupation authority. This legislation resulted in the formation of a powerful labor union that frequently came into conflict with NEC management. And although NEC was able to open its major factories by January of 1946, workers demanding higher wages went on strike for 45 days only 18 months later.

The Japanese government helped companies like NEC to remain viable through the award of public-works projects. Uneasy about becoming dependent on these programs, however, Watanabe ordered the reapplication of NEC’s military technologies for commercial use. Submarine sonar equipment was thus converted into fish detectors, and military two-way radios were redesigned into all-band commercial radio receivers.

Still, NEC fell drastically short of its postwar recovery goals. In April, 1949 the company closed its Ogaki, Seto, and Takasaki plants and its laboratory at Ikuta, and laid off 2,700 employees. The union responded by striking, yielding only after 106 days.

Next on Watanabe’s agenda was the establishment of patent protection for NEC’s technologies. During the war, all patented designs had become a “common national asset”—in the public domain. Eager to reestablish its link with ISE, NEC needed first to ensure that both companies’ technologies would be legally protected. This accomplished, NEC and ISE signed new cooperative agreements in July, 1950.

With Japan’s new strategic importance in light of the Korean War, and with the advent of commercial radio broadcasting and subsequent telephone expansions, NEC had several new opportunities for growth. The company made great progress in television and microwave communication technologies and in 1953 created a separate consumer-appliance subsidiary called the New Nippon Electric Company. The following year NEC entered the computer field. By 1956 it had diversified so successfully that a major reorganization became necessary and additional plant space in Sagamihara and Fuchu was put on line. NEC also established foreign offices in Taiwan, India, and Thailand in 1961.

Watanabe, believing that NEC should more aggressively establish an international reputation, opened an office in the United States in 1963. In addition, the company’s logo was changed, dropping the simple igeta diamond and “NEC” for a more distinctive script. In November of the following year, Watanabe resigned as president and became chairman of the board.

The company’s new president, Koji Kobayashi, took office with the realization that because the Japanese telephone market would soon become saturated, NEC would have to diversify more aggressively into new and peripheral electronics product lines to maintain its high growth rate. In preparation for this, he introduced modern management methods, including a zero-defects quality-control policy, a concept borrowed from the Martin Aircraft Company. Over the next two years, Kobayashi split NEC’s five divisions into 14, paving the way for a more decentralized management system that gave individual division heads greater autonomy and responsibility.

With the continued introduction of more advanced television-broadcasting equipment and telephone switching devices, and taking advantage of the stronger position Watanabe and Kobayashi had created, NEC opened factories in Mexico and Brazil in 1968, Australia in 1969, and Korea in 1970. Affiliates were opened in Iran in 1971 and Malaysia in 1973.

With a diminishing need for technical-assistance programs, NEC moved toward greater independence from ITT. That company’s interest in NEC (held through ISE) was reduced to 9.3% by 1970, and eliminated completely by 1978. Similarly, NEC shares retained after the war by Sumitomo-affiliated companies were gradually sold off, an action that reduced the Sumitomo group’s interest in NEC from 38% in 1961 to 28% in 1982.

NEC’s competitive advantage in labor costs eroded continually from the mid-1960s, when worker scarcity became apparent, until the early 1980s. This, together with President Richard Nixon’s decision to remove the U.S. dollar from the gold standard in 1971 and the effects of the Arab oil embargo of 1973, profoundly compromised NEC’s competitive standing. The company was forced into a seven-month retrenchment program in 1974, losing precious momentum in its competition with European and American firms.

In an effort to promote Japanese electronics companies, the Japanese government pushed through a series of partnership agreements among the Big Six computer makers: NEC, Fujitsu, Hitachi, Mitsubishi, Oki, and Toshiba. NEC and Toshiba formed a joint venture, which gave both companies an opportunity to pool their resources and eliminate redundant research. However a subsequent attempt by NEC to enter the personal-computer market failed miserably. Still, NEC, choosing to work with Honeywell instead of building IBM compatibles, invested heavily in its computer operations. Confident of its ability to marry its computer technology with communications expertise independently (C&C), NEC aimed to develop state-of-the-art machinery for the 1990s market.

Kobayashi, in the meantime, was promoted to chairman and CEO, and succeeded as president first by Tadao Tanaka in 1976, and then Tadahiro Sekimoto in 1980. Under Kobayashi and Tanaka, NEC tripled its sales volume in the ten years to 1980. A greater proportion of those sales than ever before was derived from foreign markets, and between 1981 and 1983 NEC’s stock was listed on several European stock exchanges.

NEC has not yet begun to benefit from its C&C effort, mainly because of the long lead times required to develop multiple, integrated information-processing systems, and then effectively market them to an audience exposed to different equipment from major competitor. Indeed, NEC must introduce a truly revolutionary system capable of winning customers away from IBM and others to realize a return on its risky investment in the future.

Principal Subsidiaries:

Ando Electric Company, Limited (50%); ANELVA Corporation (81%); Japan Aviation Electronics Industry, Limited (50.2%); NEC Akita, Ltd.; NEC Engineering, Ltd.; NEC Field Service, Ltd.; NEC Fukui, Ltd.; NEC Fukuoka, Ltd.; NEC Fukushima, Ltd.; NEC Factory Engineering, Ltd.; NEC Gunma, Ltd.; NEC Home Electronics, Ltd.; NEC Hyogo, Ltd.; NEC Ibaraki, Ltd.; NEC Information Service, Ltd.; NEC Kagoshima, Ltd.; NEC Kansai, Ltd.; NEC Kumamoto Ltd.; NEC Kyushu, Ltd.; NEC Software, Ltd.; NEC Miyagi, Ltd.; NEC Nagano, Ltd.; NEC Niigata, Ltd.; NEC Oita, Ltd.; NEC Saitama, Ltd.; NEC San-ei Instruments, Ltd. (95.6%); NEC Shizuoka, Ltd.; NEC System Integration & Construction, Ltd. (58.6%); NEC Tohoku, Ltd.; NEC Toyama, Ltd.; NEC Yamagata, Ltd.; NEC Yamaguchi, Ltd.; NEC Yonezawa, Ltd.; NEC-Toshiba Information Systems Inc. (60%); Nippon Avionics Company, Limited (50.1%); NEC Warehouse and Distribution, Ltd.; NEC Radio & Electronics, Ltd.; NEC Data Terminals Ltd.; NEC America, Inc. (U.S.A.); NEC Australia Pty. Ltd. (Australia); NEC Electronics Singapore Pte. Ltd. (Singapore); NEC Home Electronics (U.S.A.) Inc.; NEC Electronics Inc. (U.S.A.); NEC Electronics (Europe) GmbH (W. Germany); NEC Deutschland GmbH (W. Germany); NEC Industries, Inc. (U.S.A.); NEC Information Systems, Inc. (U.S.A.); NEC Semiconductors Ireland Limited (Ireland); NEC Semiconductors (Malaysia) Sdn. Bhd.; NEC Semiconductors (UK) Limited; NEC (UK) Ltd.