Fujitsu (A)*
T Madhavan and P S Thomas
Starting in 1935 as a small manufacturer of
telephone equipment, Fujitsu grew
phenomenally to become a world leader in
computers. Its strategy of global reach,
based on leveraging the firm's focal faculties
(in high-speed information processing,
large-scale integration, etc.) through
carefully structured international
operations, served to destabilize established
competitors and benefit customers. In early
1991, Fujitsu's Executive Board had to
decide on its future approach to "competing
in computing" in the face of dramatic
developments in this high-tech industry.
Readers are welcome to send their
responses on this case — diagnoses,
prescriptions and generalizations — to
Vikalpa office.
T Madhavan is Professor of Quantitative
Methods and P S Thomas is on the research staff
of the Indian Institute of Management,
Ahmedabad.
Vol.18, No.2, April-June 1993
judo n Modern development of JU-JTTSU
[Jap.= gentle way]
ju- jitsu n Japanese system of unarmed combat
using opponent's strength and weight to his
disadvantage [Jap.=gentle science]
- Pocket Oxford Dictionary
In early 1991, Fujitsu's Executive Board met in the "sci-
tech" conference hall on the 21st floor of the company
headquarters in Tokyo's central business district. At the
head table sat Mr T Sekizawa, President and Chief
Operating Executive, flanked by Chairman T
Yamamoto, Vice Chairman M Yasufuku and Executive
Vice Presidents K Watanabe and M Ohtsuki. The 31
other men present included executive directors, manag-
ing directors, directors, and auditors who had as-
sembled from around the world. The 36 member Board
was meeting over a three day period to review the
results of the fiscal year due to end shortly, to exchange
views on recent industry developments and to set some
broad parameters for the Group's operations in future.
On taking the floor, Sekizawa noted that Fujitsu
had recorded a compound annual growth rate (CAGR)
of over 15 per cent in the decade to date. But only
current growth had touched the long-term target of 20
per cent (Exhibit 1 is an eight-year financial summary).
Still, it had propelled the company to the second posi-
tion, behind IBM, in the world computer industry. The
successful negotiation of an 80 per cent stake in Britain's
International Computers Ltd. (ICL) for £ 743 million in
1990 had greatly helped in achieving this position. The
deal had also raised the level of Fujitsu's revenues
generated overseas from 20 per cent to 25 per cent, the
long-term goal being 33 per cent (Exhibit 2 gives the
domestic/overseas sales amounts for a ten-year
period).
* Based on published materials (See Appendix I) and a simu-
lated problem focus. The valuable cooperation of Fujitsu Ltd
is gratefully acknowledged, but the authors take respon-
sibility for the write-up.
41
 About 2/3 of Fujitsu's revenues were accounted for
by computer products ranging from small hand-held
PCs to huge supercomputers and related services.
Hence, Fujitsu management paid close attention to
developments in the world computer industry which
was undergoing transformational change driven by
swift progress in semiconductors and telecommunica-
tions equipment (in which Fujitsu was 6th and 8th
respectively in the world). Competition was intensify-
ing, alliances were proliferating, software was increas-
ingly becoming critical and governments everywhere
were super-sensitive to trade, investment and other
issues involving the information technology sector in
which Fujitsu was broadly positioned.
The third Middle East crisis had accentuated a
slowdown in the industry induced by recessionary
economic conditions originating in the US in mid-1990.
By the end of that year, American and European com-
puter companies were haemorrhaging in varying
degrees. Groupe Bull of France (a public sector unit) had
posted a loss of over $1 billion, an all-time record in the
computer industry. IBM had just announced a com-
pletely unexpected halving of first quarter 1991
revenues. Wall Street was even projecting an unprece-
dented loss for the full year. However, with the recent
launch of a new line of mainframes (IBM's "most sig-
nificant" announcement in 25 years which Fujitsu had
immediately countered with its powerful M-1800
series), vigorous competition seemed certain for Fujit-
su.
In these circumstances, Sekizawa (59), whose career
at Fujitsu had its roots in telecommunications and who
had been elected Chief Executive a year ago, exhorted
the group to look at Fujitsu's situation as objectively as
possible. Reminding his colleagues of th? corporate
slogan "what mankind can dream, technology can
achieve," he urged the team to think of effective ways
in which Fujitsu could continue its pace setting role in
products and customer relationships. The firm's focal
faculties and strategic aspirations had to be carefully
assessed and steps taken to strengthen them in the
interests of Fujitsu's industrial future.
Company Background
Fuji Tsushinki Seizo K K came into being in 1935 as a
manufacturer of telephone equipment, a spin off from
Fuji Electric of the Furukawa Group. Furukawa (with
interests in copper mining and processing) had entered
into a wide ranging collaboration with Siemens AG a
dozen years earlier. Fuji Electric was currently Japan's
42
fourth largest maker of electrical machinery. Its stake in
Fujitsu (the shortened name having been adopted in the
late 1960s) was 13.5 per cent. Fujitsu was listed on the
Tokyo Stock Exchange in 1949.
As an integrated producer of telecommunications
equipment for the public sector telecom service, Nip-
pon Telephone & Telegraph (Nil), Fujitsu became a
leading member of its so called "Den Den" family of
suppliers (NEC, which incorporated in 1925 the decade
old AT & T Western Electric plant in Japan, was the
dominant firm in this Group). NTT was privatized in
1985, and only accounted for about 10 per cent of
Fujitsu's telecom revenues currently. However, Fujitsu
was a global telecom supplier, ranking 8th in the world
industry. Its total telecom revenues which had declined
to 25 per cent of company revenues by 1978 levelled off
at about 16 per cent during the 1980s. Its cellular phone
was the world's smallest.
In computers, Fujitsu was the first Japanese com-
pany to develop a relay based (electromechanical) sys-
tem, the FACOM 100, through the efforts of a team
under T Kobayashi in 1954. Initially, this gave a strong
impetus within the company to numerically controlled
machine tools for which a large group was formed the
very next year under Dr S Inaba. In fact, Kobayashi's
office computer group began to receive encouragement
only when K Okada came from Fuji Electric to become
Fujitsu's President a few years later. By that time,
several Japanese companies had jumped into the com-
puter business in collaboration with American firms
and Fujitsu overtook them only in the late 1960s.
By 1980, Fujitsu even overtook IBM Japan to occupy
the first place, a unique feat in IBM dominated
geographic markets. In 1983, it launched its first super-
computer and later it entered the laptop and hand-held
computer market. The computer business accounted for
66 per cent of company revenues in 1990-91 with an
average of 64 per cent for the decade as a whole. Al-
though the markets were quite distinct, the computer
business was related to the telecom business since a
digital telecom switch was essentially a computer
which could handle voice as well as data (Exhibit 3 gives
the segment-wise profile of Fujitsu's total information
systems revenues as of 1990 with comparable data for
IBM).
"Electronic devices" especially "microelectronics"
constituted the third key strand of Fujitsu's business,
currently accounting for 14 per cent of total revenues
(the same as the ten-year average). This line consisting
mainly of a wide range of semiconductors began with
Vikalpa
the volume production of transistors in the late 1950s.
Volume production of integrated circuits (ICs) began in
1966 and a merger two years later with Kobe Kogyo
(originally a specialist in receiving tubes which
switched to transistors at the same time as Fujitsu) gave
the firm a 4 per cent share in the Japanese semiconduc-
tor industry which was basically oriented to consumer
electronics.
In July 1975, a consortium of five major Japanese
electronics companies including Fujitsu was formed by
NTT and MITI to conduct research in ICs and share
production technology. As a result, Fujitsu was the first
to sell the 64 kilobit dynamic random access memory
chip (64K DRAM for short) on the world market in
1978-79. Continued innovation by the Japanese coupled
with an appreciating dollar during a cyclical downturn
in the business led to the domination of the memory
chip market by the Japanese and the withdrawal of
seven out of nine American producers from this busi-
ness by the mid-1980s (IBM made memory chips solely
for internal use though it was now planning to sell in
the open market also).
In 1986, Fujitsu played a critical role in the key
microprocessor chip market by manufacturing a 32-bit
Reduced Instructing Set Computing (RISC) chip
designed by Sun Microsystems, a new American com-
puter company. This component has since accelerated
the shift from large stand alone mainframes to intercon-
nected desktop machines consisting of "workstations"
and personal computers.
Fujitsu was the sixth largest merchant producer of
chips in the world though half its output was used
internally. Leading edge devices such as microproces-
sors (produced under license) and logic chips ac-
counted for 70 per cent of its business with memory
chips taking care of the rest. Thus, it was ranked fourth
in memory chips but first in gate arrays. In 1990, the
world market for memory chips (predominantly
American and computer/telecom based) had plunged
by 25 per cent (Exhibit 4 gives Fujitsu's net sales by
product group for a five-year period and Exhibit 5 gives
a list of the top 20 semiconductor vendors in the world).
Fujitsu in Japan
Inaugurated in 1985, the company headquarters where
the Executive Board was in session was one of Fujitsu's
four main office premises. Besides, it had 15 manufac-
turing facilities in Japan. The Kawasaki Research and
Manufacturing facility, established in 1938, had the
largest staff complement (12,000 persons) engaged in
Vol.18, No.2, April-June 1993
product development (hardware as well as software)
for computer systems, communication systems and
semiconductors. The Oyama plant, commissioned in
1959, specialized in telecom systems while the Numazu
Complex, set up in 1976, concentrated on large com-
puter systems and advanced software development.
The Iwate, Wakematsu and Mie plants, which were
constructed in the early 1980s, produced semiconduc-
tors. The Iwate plant, an 84,000 square metre facility,
fabricated and assembled memory chips while the
Wakematsu plant made gate arrays.
For marketing purposes, Fujitsu had three regional
sales groups (i.e., for Tokyo, Eastern Japan and Western
Japan), a number of, customer/business oriented sales
groups as well as the usual product groups. Fujitsu had
scores of showrooms and sales branch offices in Japan.
In addition, it had a number of telephone enquiry ser-
vices for customers, a Business Systems Customer Ser-
vice Centre and a Business Systems Application
Software Promotion Centre.
Fujitsu also had 118 subsidiaries in Japan, nearly a
quarter of them manufacturing/R&D companies. A
leading subsidiary, Fujitsu Labs was set up in 1968 and
was the first in Japan to specialize in computer research.
Fujitsu TEN incorporated the company's car audio sys-
tems business and was spun off in 1972. It received
capital participation from Toyota and Nippondenso.
PFU Ltd, set up in collaboration with Matsushita
Electric Industrial Co Ltd. in 1973, produced minicom-
puters (and later PCs) under the brand name of
PANAFACOM. Originally, this unit had been started
by a Fujitsu executive. Besides all these, there were
numerous software/data processing service sub-
sidiaries (most of which were specialists in particular
industries) and sales/design/service subsidiaries for
integrated circuits.
Among Fujitsu's leading Japanese "affiliates" was
FANUC Ltd (41 per cent Fujitsu equity) which was
established in 1972. A $2 billion company, it dominated
the world's numerically controlled machine tool in-
dustry with a 70 per cent market share in Japan (50 per
cent on a world-wide basis). Dr S Inaba, FANUC's
President, was a Director on Fujitsu's Executive Board.
Another leading affiliate, Advantest, was a semicon-
ductor equipment maker that ranked 4th in this in-
dustry globally with over $400 million in 1990 revenues.
In late 1971, Fujitsu established close inter-firm
coordination with Hitachi under the auspices of a Mill
project to develop mainframe computer technology
focusing it into a joint venture named FACOM- HITAC
Ltd in 1974. Fujitsu and Hitachi were members of the
43
Dai-ichi Kangyo Bank (DKB) Keiretsu or alliance of
diverse businesses (Kobe Kogyo was once a member.
More recently, a consumer electronics firm had joined
the group at the behest of DKB and it was called Fujitsu
General Ltd). DKB is the world's largest commercial
bank. Together with Asahi Mutual Life Insurance Co.,
a total of 11 per cent of Fujitsu shares are in DKB
financial institutions. Hitachi, one of Japan's largest
manufacturing companies, had loose links to several
Keiretsu due to its highly diversified nature (Exhibit 6
shows the Keiretsu links of Japan's leading electronics
companies whose annual revenues range between
about $ 10 billion and $ 50 billion).
In 1986, Fujitsu teamed up with Hitachi and Mit-
subishi Electric to develop 32 bit microprocessors based
on "The Real-Time Operating System Nucleus" (abbrev.
TRON) architecture originally developed by a Univer-
sity of Tokyo scientist with whom Hitachi had made
contact. The first TRON based chips were currently
nearing commercial launch as one of the world's fastest
microprocessors at 100-200 million instructions per
second (MIPS) (Exhibit 7 gives Fujitsu's R&D and capi-
tal expenditures for a ten-year period).
Global Strategy
When leading Japanese companies entered into col-
laborations with American computer companies, Fujit-
su followed an independent path just as IBM did. In
I960, IBM's sales at $2 billion were 30 times those of
Fujitsu but the group under T Kobayashi was already
thinking "catch up." Without foreign collaborators'
restrictions to hinder it, Fujitsu embarked very early on
a global strategy, sending salesmen first to Bulgaria
(where its technology was licensed) and eventually
landing a sales contract for the FACOM 23 (developed
in 1964) in the Philippines in 1965. Its first overseas
office opened in New York in 1967 with its California
office starting a year later. In the early 1970s, Fujitsu
moved into Spain and Brazil on one side of the world
and Korea and Australia on the other.
At that time, the world computer market was
dominated by IBM which had successfully made the
transition during the 1950s from office machines (such
as tabulating machines and typewriters) that dated
back to its World War I origins to computers. Once it
entered the computer business, IBM developed very
rapidly, spanning two generations of computer tech-
nology (vacuum tubes and transistors) by 1960.
IBM's commercial operations in Japan began in
1937. Later, it set up IBM Japan as a 100 per cent sub-
44
sidiary in 1950 even before IBM Corp followed Sperry
Rand's "UNIVAC" into electronic computers in
America. In 1960, IBM Japan applied to MITI for per-
mission to start computer manufacturing activities.
When this permission was not forthcoming, IBM
bypassed the Foreign Investment Law of 1951 (since
discontinued) by raising the required funds locally.
MITI retaliated by cutting off imports of parts and
products. A settlement was reached when IBM agreed
to share its basic patents with the Japanese. Thus, IBM
Japan began manufacturing in 1963. It quickly
dominated the Japanese market, taking an 80 per cent
share with domestic companies holding the rest. On the
strength of its highly successful 360 series, launched in
1964, IBM gained a firm grip on the industry world-
wide. MITI immediately commissioned a study which
formed the basis for the subsequent development of the
Japanese computer industry.
In 1967, a key executive of IBM Japan joined Fujitsu
as head of the computer business. Within a year,
Fujitsu's computer revenues caught up with its telecom
business. It was then decided that in order to compete
in world markets, Fujitsu would make computers
whose central processing units (CPUs) were compatible
with IBM systems so as to run the numerous applica-
tions software packages that had been designed for the
360 series. RCA had tried to follow such an "IBM-
compatible" strategy but somehow it did not make its
peripherals such as printers and storage devices also
"plug compatible." Its Japanese licensee was Hitachi
whose success in the domestic market had been noted
at Fujitsu.
In 1970, Dr Gene M Amdahl, the chief designer of
the IBM 360 left to develop a more powerful machine
along the lines of the new 370 series. Fujitsu immedi-
ately contacted him in California, clearing its approach
with Hitachi. Amdahl Corp was formed in 1971 and
Fujitsu contributed a capital subscription of $5 million.
Its leading computer scientist, Dr T Ikeda, participated
in the prototype development process in California and
Fujitsu increased the supply of equity funds to Amdahl
as the work progressed. Eventually, the first Amdahl
machines were supplied from Japan on an Original
Equipment Manufacturer (OEM) basis in late 1975
equipped with Fujitsu's emitter coupled logic (ECL)
chips and badged with Amdahl's logo in oriental red
colours. The Amdahl V/6 was an immediate hit, espe-
cially with reputed customers such as NASA and AT &
T, because of its high quality and extraordinary
reliability.
Vikalpa
 Restrained initially by anti-trust fears, IBM
retaliated two years later by dropping the price of its
370 mainframe by 30 per cent. Afterwards, it began to
copyright its operating system software and, in 1979, it
launched a mote powerful low-priced model, the 4300.
Amdahl, whose sales had reached $ 300 million in 1978,
countered with an even more powerful model, the V/7,
at just a marginally higher price. At the same time, it cut
the price of its previous model and added a smaller
version, the V/5. Fujitsu supported Amdahl's price cuts
by reducing its own charges by 20 per cent using
cheaper Complementary Metal Oxide Semiconductor
(CMOS) memory chips, providing extended terms of
payment and shifting final assembly for the US market
to California. Computers for the Asian and Australian
markets continued to be made by Fujitsu in Japan while
systems for the European, South American, Canadian
and Middle Eastern markets were supplied from a new
Amdahl factory in Ireland from 1979.
Meanwhile, IBM's revenues plateaued and it even
experienced a cash crunch at this time. Its world-wide
network grew to be dominated by operational con-
siderations of balancing intra-firm trade flows and max-
imizing local staffing levels rather than pursuing global
economies of scale. In this way, IBM tried to be a good
corporate citizen and to deflect any latent interference
from governments (which also tended to be its main
customers).
Amdahl specialized in the design and distribution
of large IBM compatible mainframes that used 370
software and its extensions. The firm was also active in
computer maintenance and computer education ir-
respective of whether the customers used Amdahl
machines or competing ones. Its corporate mission was
simply "to provide solutions which give our customers
a competitive edge." In the process, it had grown from
19th among US computer companies in 1980 to 13th in
1990 with revenues of $2.2 billion from 9,000
employees. In fact, it was No. 2 in the US mainframe
segment. Its current models had been introduced in
1986-88 and a new line to counter IBM's latest Summit
9000 series was due to be shipped in late 1991 with chips
from Fujitsu.
Amdahl's relationship with Fujitsu was charac-
terized by competition as well as collaboration. After
Gene Amdahl left in 1979 to pursue further
entrepreneurial interests, Fujitsu's stake in the com-
pany levelled off at 44 per cent (valued on the books at
$50 million). According to a 1984 agreement between
Amdahl and Fujitsu, the holding could not exceed 49.5
Vol.18, No.2, April-June 1993
per cent for ten years. However, Amdahl faced sig-
nificant competition from Fujitsu in the mainframe
markets of Australia, Canada and Europe. Competition
for Amdahl also increased as Fujitsu entered into allian-
ces with European computer makers.
Strategy of Alliances
Siemens: In 1976, Fujitsu obtained a listing on the
Frankfurt Stock Exchange and two years later signed an
agreement with Siemens to supply its mainframes ex-
clusively to the EC market on an OEM basis and to
license software. It was a "natural alliance" because of
the historical link between Siemens and Fujitsu's
parent, Fuji Electric. Besides, Siemens' 1964 agreement
with RCA had ended when the latter withdrew from
the computer business in 1971. The agreement with
Siemens was stated by Fujitsu to be aimed against Cray
Research of the US which had developed a supercom-
puter in 1976 and had begun opening overseas sales
offices. Fujitsu began to develop supercomputers in
1977.
Siemens was among the world's largest manufac-
turing companies with 1989 revenues of $36 billion,
nearly 400,000 employees, a range of over 200,000
products loosely grouped into 300 separate operating
businesses in the electrical machinery industry and a
strong cash position. One third of Siemens' profits came
from the telecom business because of lucrative contracts
from the German national telecom authority. However,
it was losing money in the chip business (because of
difficulties in sustaining the pace of product innova-
tion) and in computers (because of its 1990 merger with
loss making Nixdorf). Siemens Nixdorf Information
Systems, SNI, was Europe's largest "indigenous" com-
puter company, but second to IBM Europe.
When IBM attacked Fujitsu's operating system on
copyright grounds in 1982, it pressured Siemens to stop
accepting Fujitsu software until arbitration ended in
September 1987 (with both sides declaring victory).
Siemens acquired IBM's Rolm telecom manufacturing
unit in 1988, collaborated 50:50 with IBM in the unit's
marketing function and engaged in a joint study with
IBM of European telecom network services with Bell
Atlantic providing software expertise. In late 1989, IBM
agreed to team up with Siemens to develop the 64
megabit DRAM chip (due in the market by 1994). In
return, Siemens sponsored IBM's admission to JESSI
(the Joint European Submicron Silicon Initiative), a
multi-billion dollar long-term EC project launched in
early 1989 to increase European companies' competi-
tiveness in semiconductors.
45
 But Siemens also marketed Fujitsu's VP-200 super-
computers with Europe accounting for about a quarter
of the $ 2 billion world market for such machines.
Siemens planned to introduce Fujitsu's 170 MIPS
mainframe in 1991 to counter IBM's Summit 3900 series.
At the low end, Siemens had begun re-selling laptop
PCs made by Matsushita Electric Industrial Co.
ICL: ICL came into being in 1968 as a result of the
amalgamation of a number of British com-
puter/electronic companies under government
auspices. One of the constituents, ICT, which had
originated in a similar manner in 1959, traced its own
roots to . BTM, a competitor of IBM in tabulating
machines during the inter-war period. ICT had an ar-
rangement with Hitachi dating from 1965.
In 1976, ICL took over Singer Business Machines
adding three new products, 2,500 new customers and
entering some new European markets (besides France
and Germany) in the process. The UK market accounted
for about half of ICL's business at the time with a
significant part of it on civilian government account via
preferential procurement systems. The rest of ICL's
revenues (40-50%) originated overseas, especially in the
British Commonwealth (South Africa was an ICL
stronghold) and even Eastern Europe. It had operations
in some 40 developing countries. However, the US
market was a marginal one for ICL.
In 1979, ICL's financial position suddenly became
very precarious due to a global recession and manage-
ment deficiencies. The government propped it up with
a loan guarantee (initially for 2 years, then for 3 more)
and used the opportunity to change the top manage-
ment team in May 1981. Mr Robb Wilmot, the new
Managing Director, 36 years of age, set out to restore
ICL's profitability (through deep staff cuts) and to im-
prove its viability (by filling gaps in its product range).
The previous year, Hitachi had signed an OEM
agreement for the supply of mainframes to BASF in
Germany and Olivetti in Italy. NEC struck a similar deal
with Groupe Bull in France. So Wilmot turned immedi-
ately to Fujitsu where Yamamoto, a protege of Okada,
had just taken over as President. The three- year agree-
ment eventually signed in December 1981 on which
ICL's survival rested, covered the supply of Fujitsu's
M-780 mainframes on an OEM basis (switched sub-
sequently to Amdahl), the supply of semiconductors/
circuit boards and a technology sharing agreement for
a new ICL (non-IBM compatible) mainframe. Wilmot
thus began a process of structural change which was
continued on a cultural plane after his departure in 1984
46
by his Director (Marketing) Mr Peter L Bonfield who
moved into the vacant position of Chief Executive.
Bonfield focused on ICL marketing in order to in-
crease its responsiveness. Five industry specific group-
ings were formed for this purpose. "Retail" which
accounted for a substantial part of ICL revenues was
focused specifically on supermarkets. In the US, this
group focused on "Do it Yourself1 (DIY) stores. The
other four groups formed were manufacturing, finan-
cial services (other than banking), public administration
and defence. About 50 per cent of ICL's R&D resources
were allocated to these marketing groups. Product sales
continued to be the responsibility of ICL's unified sales
force. After taking suitable housekeeping measures,
ICL's manufacturing was computerized using its own
machines, transforming it from a problem area to a
showcase for ICL computers.
In late 1984, ICL was acquired by the telecom firm
of STC (originally a Western Electric subsidiary that had
been taken over by ITT) for £ 411 million. But STC did
not interfere in the computer business. Fujitsu renewed
its agreement with ICL for a further seven-year period.
It provided inputs to ICL management on the reform
process and participated in the design of the new series
39 mainframe which was launched in 1985. ICL thus
became a significant customer for Fujitsu's CMOS gate
array chips.
By 1987, ICL became consistently profitable and the
mainstay of STC's own financial health. Corporate
funding was inadequate given the high R&D and capi-
tal investment requirements and growing price com-
petition in the computer business. Hence, STC began
the process of finding a new owner for ICL. Talks were
held with numerous European and American com-
panies and with Fujitsu. (Exhibit 8 gives profiles of
leading European companies). In July 1990, a few
months after Mitsubishi Electric took over the ailing
British PC maker Apricot Computers, STC manage-
ment negotiated the sale of an 80 per cent stake in ICL
with Fujitsu Chairman Yamamoto. Shortly afterward,
STC itself was acquired by Northern Telecom Ltd. of
Canada which became the co-owner of ICL to the extent
of 20 per cent.
At the time, Fujitsu emphasized its plan to let ICL
(with Bonfield as Chairman) manage as autonomously
as possible and announced that 25 per cent of ICL shares
would eventually be publicly held. However, there was
an outcry from the French over ICL's Japanese link and
it was excluded from some of the JESSI projects due to
this.
Vikalpa
Sun Microsystems: Founded by Mr Vinod Khtfsla (a
Stanford MBA) in the early 1980s, "Sun" stood for "Stan-
ford University Network" which catered to a need in
academic and engineering circles to use a platform
(operating system) called UNIX. Not only was UNIX
(developed by AT & T) virtually in the public domain,
but it was also quite versatile. Sun customized UNIX in
some significant ways and designed desk top com-
puters called workstations based on it. Sun built these
machines entirely from "off the shelf components and
parts so that its designers could take advantage of every
opportunity to achieve higher performance levels in
time frames of only 12 months or so (compared to a four
to five-year development cycle in the mainframe busi-
ness). By 1985, Sun introduced three generations of its
workstations.
For the Sun 4, however, it came up with a significant
innovation. Instead of using standard microprocessors,
Sun designed its own chip using a technology originally
developed by IBM called Reduced Instruction Set Com-
puting (RISC). Unwilling and/or unable to manufac-
ture the chip, Sun's designers approached established
chip manufacturers to produce the new component. All
of them refused (even though it was simpler and less
costly than traditional microprocessor designs) merely
because it was not "in house" in origin. Besides, Sun was
only a $30-40 million company with a two-year track
record. Fujitsu's local representative (in California)
referred the youthful team to Tokyo headquarters
where the then Executive Vice President (now Vice
Chairman) M Yasufuku was intrigued by the proposal.
However, in order to accept it, he had to overcome the
prevailing "mainframe mentality" in Fujitsu's semicon-
ductor division. The so-called Scalable Processing Ar-
chitecture Reduced-instruction-set Computing (or
SPARC) chip first produced by Fujitsu in 1987
propelled Sun to a leadership position (ahead of IBM,
DEC and Hewlett Packard) in the most rapidly growing
segment in the overall computer market.
In order to increase the acceptance of the SPARC
chip, Sun's aggressive Chief Executive, Mr Scott Mc-
Nealy, licensed the design to an increasing number of
fabricators, ten at last count, on a non- exclusive basis.
These licensees, including Fujitsu, used technologies
ranging from low cost CMOS to ultrahigh performance
Gallium Arsenide (GaAs). Fujitsu made the gate array
version. Thus, chips of the same design were available
at various speeds and prices and could be used in a
variety of computer systems. Fujitsu used SPARC for
its laptops while ICL's DRS6000 was a SPARC-based
minicomputer system which it supplied on an OEM
basis to Sun as well as to Fujitsu.
Vol.18, No.2, April-June 1993
Sun's development cost for SPARC was a fraction
of that required for popular chips like Intel's x86 family.
By 1990, its sales were nearly $3 billion from the sale of
150,000 systems in a market for workstations estimated
at $6.5 billion. Sun's architecture accounted for over 60
per cent of all US RISC based computer shipments.
Applications developed for SPARC hardware were
thrice the number of those designed for leading
workstation competitors almost all of whom were
American.
Following Sun's lead, these competitors had
developed RISC chips of higher performance. IBM had
achieved significant success with the introduction in
1989 of a UNIX based workstation for the commercial
market designed by Mr Andrew Heller who, however,
quit in 1990 to start his own firm, HaL Computers, to
work on "superscalar" machines while Sun turned to
Texas Instruments (TI) to develop a "superscalar" chip.
In early 1991, AT & T sold a part of its stake in Sun to
alleviate fears in industry circles that the latter was
trying to "monopolize" UNIX as its use spread from
narrow engineering to broader commercial environ-
ments. In Japan, Sun initially sold its workstations
through C.Itoh (a leading trading house in the DKB
group) setting up its own subsidiary in 1986. However,
re-sellers like Fujitsu accounted for the bulk of Sun's
workstation sales in this market. Through Sun, Fujitsu
gained access to critical compiler technology and ex-
perience in optimizing UNIX hardware.
MCI Communications: Washington, DC based
MCI was a "specialized common carrier" which used
microwave circuits to offer trunk telecom services
(especially data transmission) in direct competition
with AT & T over some very lucrative routes. Operating
revenues of $7 billion gave it a 20 per cent US market
share in this business. In the mid-1970s, it successfully
brought an anti-trust suit worth $1.8 billion, the biggest
in US history, against AT & T. MCI's founder, the late
Mr William G McGowan, was named to Fortune's Hall
of Fame.
In the late 1970s, it inducted state-of-the-art single
mode fibre optic transmission equipment (which
employed laser technology) from Fujitsu because
American suppliers refused to make such equipment
available to MCI for competitive reasons. Such systems
not only became the core of MCI's infrastructure but
they became the dominant optical fibre technology as
well. For MCI, Fujitsu had established a 405 megabit per
second (mbps) system in 1983, an 810 mbps system in
1986 and a 1.8 gigabit per second system in 1988.
47
 MCI was renowned for its low-cost position,
sophisticated telecom software and aggressive cor-
porate culture. IBM acquired a 16 per cent stake in MCI
in 1985 with an option to increase it to 30 per cent but
sold back the shares in 1988. Meanwhile, Fujitsu's in-
stitutional advertising spotlighted strategic alliances
such as that with MCI. Titled "How Fujitsu Helps MCI
Change the World" a recent advertisement featured
MCI's Chief Strategy and Technology Officer, Mr
Richard Liebhaber, who attributed a significant
measure of MCI's commercial success to Fujitsu's tech-
nological partnership.
According to Liebhaber, MCI planned to rely on
general purpose computers for switching purposes
rather than specialized digital switches, in order to
achieve a high degree of cost-effectiveness. At the same
time, MCI focused heavily on software development to
achieve the required level of customization. An es-
timated 60 per cent of its software work was done in-
house while the rest was farmed out to contractors
subject to MCI's parametric control.
Other World-wide Activities
Australia: Fujitsu Australia Ltd was established in June
1972. Australia's computer market was characterized
by: a) openness and accessibility b) reliance on the
English language just as in the UK and USA and c)
government procurement practices based strictly on the
lowest bid. In this market, Fujitsu focused on
mainframe sales and maintenance services. The
Australian operation served as a test market for
products and training ground for managers destined
for Western countries. In 1976, Japanese expatriates
were replaced by Australian personnel. From a market
share of less than 1 per cent, Fujitsu's share increased to
5 per cent in 1980 and 10 per cent in 1982 primarily on
the basis of very aggressive bidding. At that time,
Australia had one of the largest overseas concentrations
of Fujitsu's mainframes.
In Australia, Fujitsu competed against Amdahl and
ICL with which it had OEM supply arrangements. A
measure of operational coordination among the three
was attempted to minimize conflicts in the field. In
September 1988, Fujitsu established a telecom factory in
southeastern Australia. In the following year, it signed
a five-year $15 million (cash + equipment) R & D agree-
ment with Australian National University (ANU).
Under this agreement, it made available a pre-produc-
tion model of its AP 1000 supercomputer, a massively
parallel processing (MPP) machine, for purposes of
application software development.
48
United States: Following the establishment of a small
semiconductor assembly plant in San Diego, Fujitsu
formed a joint venture in 1980 with TRW Inc. to market
its point-of-sale (POS) terminals and small computers.
Three years later, it bought out TRW's 49 per cent share.
Through this deal, Fujitsu got a valuable foothold in the
retail oriented sector dominated by IBM and NCR Corp.
Fujitsu also tied up with Computer Consoles (for
peripheral equipment) and Ampex (for tapes) in the
early 1980s.
A number of Fujitsu's acquisitions/investments in
the US followed the large appreciation in the value of
the yen in late 1985. One of the first was a new factory
for manufacturing computer peripherals in Oregon. In
1988, it began constructing a telecom plant and R & D
centre in Texas.
Soon, Fujitsu also took a 30 per cent stake (raised to
80 per cent in 1990) in Poqet Computer Corp, a new US
designer of palm top PCs, said to be the world's most
portable computer. Wilmot was appointed Poqet's
Chief Executive and was based in California. Fujitsu
was very successful in selling Poqet hand-held PCs to
organizations such as Pepsico and its subsidiaries to
streamline and automate their large field sales opera-
tions, viz, order entry, inventory management and
route accounting.
For some years before the yen revaluation in Sep-
tember 1985, criticisms of Japanese semiconductor
trade practices were heard in the US but no formal
sanctions were sought. However, when a price war
erupted in 1984/85, Micron Technologies, a small US
DRAM producer, filed dumping charges in June 1985
against top Japanese memory chip makers and also the
only other American memory chip producer, Texas
Instruments, whose DRAM business was based in
Japan. At the same time, the US Semiconductor In-
dustry Association (SIA) invoked the Special 301
provision to demand more access to the rapidly grow-
ing Japanese chip market, i.e., for "voluntary import
expansion" by the Japanese. In due course, an agree-
ment was arrived at between the US and Japanese
governments in July 1986 governing the dealings in
semiconductors for a five-year period.
To take care of the dumping problem, each
Japanese producer was assigned cost-based "fair
market values" (FMVs) below which it could not price
its chips outside Japan without attracting penalties. In
the area of market access, the understanding was that
"foreign" market share in Japan would be allowed to
double by the end-1991 deadline.
Vikalpa
 Fujitsu faced a problem because the initial FMVs
assigned to it (based on one-year old cost data) were
about three times higher than those of some of its
Japanese counterparts. This put it at a competitive dis-
advantage in export markets. However, for many
months afterward, chips purchased at low prices in the
Japanese market (exempt from the agreement) con-
tinued to find their way overseas in one way or another.
In response to complaints about this "grey market"
activity, Japanese chip makers then coordinated their
production at MITI's instance. The resulting shortages
pushed up prices, above even the highest FMVs.
Though this "solved" the dumping problem, the com-
puter industry in the West was forced to pay high prices
for chips. Still, American companies did not re-enter the
DRAM business but Korean new entrants were able to
establish a strong low-cost position at this time.
One of the other effects of the agreement (and the
prevailing high yen exchange rate) was to accelerate the
pace of Japanese green field investment in memory chip
production facilities outside Japan. Fujitsu had planned
to set up a full-scale plant in the US in 1984 but
postponed the decision due to the slump in the industry
at that time. In August 1986, it received an offer to take
80 per cent of Fairchild Semiconductor, a pioneering
firm in the industry which was facing chronic financial
difficulties even after it had been acquired in 1979 by a
French oil-field services company called Schlumberger.
Fairchild's intellectual property rights were no doubt of
value to Fujitsu though its technological prowess was
not what it used to be. Fairchild also had a global
distribution network supplied by nine US plants and
two smaller facilities in West Germany and (since 1984)
in Japan. However, the complex deal caused such a hue
and cry in the US among industry and government
circles that Fujitsu abruptly decided to drop the acquisi-
tion plan in March 1987. But it put forward alternate
proposals to Fairchild for a series of technology ex-
change and development programmes as well as plans
for joint production in Japan. However, Fairchild was
soon acquired by another American semiconductor
firm at half the original price offered by Fujitsu. In the
process, Fairchild's Japanese plant was sold off to Sony
while Matsushita acquired one of the US plants. Ul-
timately, even Fairchild's historic identity became non-
existent in the restructuring. For its part, Fujitsu
proceeded to set up a new DRAM production facility in
Oregon, commissioning it in October 1988 (incidental-
ly, in 1981 also, Fujitsu had to withdraw from a key fibre
optic contract with AT & T because of hostile American
public opinion).
Vol.18, No.2, April-June 1993
In 1990, trade disputes between the US and Japan
erupted in supercomputers and in liquid crystal dis-
plays (LCDs). In the case of the former, US manufac-
turers, such as Cray, were given access to Japanese
government tenders. In LCDs, American manufac-
turers filed an anti-dumping suit against 13 Japanese
LCD exporters, including Fujitsu.
Altogether, Fujitsu had about 5,000 employees
based in the US engaged in a highly concerted effort at
localization through numerous cooperative agree-
ments with local manufacturers, investments in local
R&D and manufacturing, and close design engineering
and after-sales services to customers.
India: Fujitsu opened an office in New Delhi in 1983.
Within a couple of years, Mr Rajiv Gandhi became the
Prime Minister and personally gave a fillip to the com-
puter industry which, on the strength of a boom in PCs,
(set off -world-wide by IBM's revolutionary 1981
product) grew at about five times the rate achieved in
the US over a decade. The previous, relatively stagnant
period had seen ICL's ICIM (International Computers
India Manufacture), which originated in the early
1960s, take over the leadership of the industry after
IBM's exit in 1978. Though Unisys entered, it opted for
a joint venture and confined itself to software develop-
ment and export. Post-1985, Hewlett-Packard, DEC and
Sun Microsystems established themselves in India.
ICIM lost its No. 1 ranking due to a lack of PCs in its
mainframe-oriented product line up. It filled this gap
quickly and recovered some lost ground through the
successful introduction of ICL's DRS/6000 and its
smaller variants which were Unix minicomputers
based on SPARC architecture, in 1990. Its product range
now spanned the full spectrum from mainframes, su-
perminis and minis to PCs and printers.
Fujitsu's primary interest in India was in telecom-
munications especially in view of the government's
plans to join the select group of ten countries in the
world with over 10 million phone lines. In 1987, Fujitsu
had installed a 25 km, 140 mbps fibre optic transmission
system between Ahmedabad and Gandhinagar, one of
about 30 systems in the country from all sources (with
40 other such projects in progress). It was seeking to
introduce its FETEX-150 digital switching technology
to a market which had (since the early 1980s) relied on
Alcatel's equipment of this type. Siemens as well as
Alcatel (with a new project) were also trying to enter the
Indian market for digital switches along with Fujitsu.
The telecom markets of developing countries such as
India were characterized by high growth rates but low
profitability for MNCs compared to developed country
markets.
49
 In the meantime, Fujitsu had tied up with Sterling
Computers' Mr C Sivasankaran (35) to introduce
peripherals such as a printer and keyboard to the Indian
computer market supplied from its Thai factory. The
industry's import intensity was, however, becoming
problematic as the country's balance of payments posi-
tion began to assume serious proportions in the wake
of the 1990 Gulf crisis. Yet it was rumoured that IBM
was interested in re-entering the Indian computer
market in 1991 though, in mainframes, it had continued
to do well there simply through its Singapore and
Australia offices.
Europe: Fujitsu chose Spain in the late 1960s to base its
European operations establishing Fujitsu Espana
(Spain) in 1973 and taking capital participation in
SECOINSA in 1975. It established a multipurpose
manufacturing facility in the Mediterranean port of
Malaga in 1977 and took over the utility company
Telefonica's computer subsidiary in 1985. With Spain's
accession to the EC in 1986, Fujitsu was in a position to
offer a range of products to the European market in-
cluding supercomputers, mainframes, minicomputers,
PCs, automated teller machines (ATMs), data transmis-
sion equipment and peripherals.
Fujitsu's semiconductor business was established
in Europe a decade ago beginning with imported semi-
conductors and then an assembly and test facility in
Dublin. Fujitsu's microelectronics group was head-
quartered in Frankfurt and marketed a wide range of
high quality components including connectors, relays,
keyboards and plasma displays. In all, Fujitsu operated
with several thousand direct and indirect employees in
more than 15 European countries and had nine semi-
conductor design centres across the continent to adapt
50
advanced computer chip technology for local European
markets.
On February 6,1989, the EC adopted tougher rules
of origin on semiconductors to shield the European
market from imports as well as to upgrade the industry
in Europe. Instead of qualifying as "local" on the basis
of the "last substantial transformation" (generally as-
sembly and test), the new rule specified "the most sub-
stantial transformation" which meant that the critical
circuit diffusion process had to be performed locally. In
addition, the EC required a 40 per cent non-Japanese
content in imported products. Fujitsu was in the process
of completing a £400 million integrated plant for 4
megabit memory chips in Newton Aycliffe, England
(Exhibit 9 gives Fujitsu's geographic distribution of
sales).
Global Vision and the Real World
As the last of the situation reports faded out on the video
conference screen at the end of the first day, Sekizawa
glanced at his watch, had a word with his senior col-
leagues and rose to conclude the meeting. He thanked
everyone for their contributions and reminded them
that the deliberations would continue for two days in
an informal setting at Fujitsu's suburban club to which
the group would proceed after the evening banquet.
The thought with which he ended was simple:
"To meet the demands of increasingly discerning
customers, Fujitsu would compete for the global title of
'Imagination, Incorporated.' It would enter the 21st
century as a highly respected name in the "digital"
business everywhere ."
Vikalpa
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