When Tokyo-based electronics giant Toshiba Corp. decided in 1984 to bolster its telecommunications business, company officials decided that it would be foolhardy to challenge Fujitsu Ltd. and NEC Corp., which dominated the Japanese market.
But the U.S. market, newly opened to competition after the court-ordered breakup of American Telephone & Telegraph, offered Toshiba another path into telecommunications.
It asked its subsidiary in Irvine to design a family of large electronic switchboards to be sold primarily in the United States but adaptable for use in the Japanese market.
"We are a latecomer in telecommunications, and it is hard to enter that business in Japan," said Kiichi Hataya, president of Toshiba America Information Systems. "We have done well on the computer side, but if we are to be strong globally, we must develop in communications."
Now, after a six-year research effort that brought together engineers on both sides of the Pacific, Toshiba is set next week to unveil its U.S. version of a large switchboard, or private-branch exchange. The company's PBX can route phone calls to as many as 1,920 extensions simultaneously.
After the AT&T breakup in 1984, Japanese manufacturers failed to capture much PBX business, in part because they designed machines in Japan instead of tailoring them to the U.S. market. Toshiba's move into the PBX arena is an attempt to emerge from a pack of second-tier vendors to mount a direct challenge to the market's big players: AT&T, Northern Telecom and Rolm, a unit of Siemens AG of Germany.
By developing a product for a $3-billion market that has proven unprofitable even for the likes of AT&T and Rolm, Toshiba is apparently pursuing a broader strategy. It believes that establishing a PBX presence is crucial to the success of future products.
PBX is considered the most technically sophisticated segment of the office telecommunications market. The market has drawn competitors because PBXs are considered the "hubs" of tomorrow's electronic offices, offering the potential to efficiently link computers and telephone equipment.
Toshiba's PBX also reflects another element of its strategy for cracking the U.S. telecommunications market: designing its products in the market where they will be sold, instead of in Japan. The Perception 4000 PBX is Toshiba's first major product line largely designed and developed outside Japan. The development was in collaboration with American engineers.
"This is the beginning of a trend of research and development in local markets," Hataya said. "You will see more products designed by us here, and not just in telecommunications."
Jon Rogers, an industry analyst at International Data Corp., a market research firm in Framingham, Mass., said Toshiba's decision to design the PBX in the United States could prove crucial.
NEC is one example of a Japanese company that has stumbled in the U.S. market by introducing machines designed in Japan rather than in the United States. Its machines had features ideal for Japanese companies but not for American firms.
Toshiba will introduce the Perception 4000 at a telecommunications industry trade show in Anaheim next week.
Ken Landoline, an industry analyst at Dataquest, a market research firm in San Jose, said that although Toshiba is sure to face tough going in a fiercely competitive market, the effort may be worth it when viewed from a long-term perspective.
"Toshiba seems to be positioning itself for a long-term extension of its telecommunications business rather than to make quick money," Landoline said. "To be a full-service provider of high technology, they need to fill out their telecommunications line."
In the U.S. market, Toshiba already manufactures telephone systems and smaller PBXs for companies with fewer than 300 phone lines. Landoline said the larger PBX is a necessary anchor as Toshiba prepares to fill out its product line.
Toshiba opened a research laboratory in Irvine in 1985--an operation that has grown to 150 employees. The American engineers worked on software, or programming instructions for the new PBX, and the Japanese engineers developed hardware, or the electronic innards, of the phone system.
In the past, Hataya said, such a move might have sparked a turf war back in Tokyo, where corporate officials have held stubbornly to the view that Japanese engineers could design products for any market.
Hataya said he was able to persuade the parent company that American engineers had more expertise than their Japanese counterparts in designing telecommunications software. And they also had a better understanding of the needs of U.S. companies.
"We want an optimum combination, and if we are good in one area in the United States, we will do the work here," Hataya said. "If Japan is better, they will do the work."
Toshiba intends to initially manufacture the Perception 4000 in Japan but may eventually move manufacturing to Irvine, said Vice President Paul Wexler.
The project took six years because Toshiba wanted to break into the market with a critical mass of software features that were constantly changing with the advance of technology, said Liang-Te (Alex) Hu, a research vice president who directed much of the software engineering for the U.S. subsidiary.