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Has Japan Lost Its Edge?


TOKYO — The Ford Taurus has overtaken the Honda Accord as America's best-selling car. Intel Corp. has surpassed NEC Corp. as the world's largest chip maker. Japanese computer makers such as Fujitsu Corp., once seen as a threat to American companies, are losing ground at home to U.S.-based Apple Computer and Compaq Computer.

And, looming over Japan like a dark storm cloud are its ailing stock market, plunging land prices, troubled banks, rattled political system and rising yen.

Is the once-frightening specter of Japanese competition fading from the world stage? Has Japan lost its edge?

Don't count on it.

"A year from now (Japan) will stand up 6 feet tall. Everybody will say, 'My God, I thought they were dead. I thought we put a spike through their head,' " said James Abegglen, a Tokyo-based consultant and longtime expert on Japan.

"The danger for us is to declare victory and relax, " warned Andrew Grove, chief executive of Santa Clara-based Intel.

To be sure, Japan's economic problems are serious. The collapse of the speculative boom of the late 1980s wiped out more than half of land and stock values almost overnight, and scared consumers into cutting spending. Japanese companies that invested heavily in plants, equipment and hiring during the boom are now saddled with high costs and lower revenue.

The government's efforts to solve economic problems may be thrown off track by the political revolt of the past two weeks that has thrown the ruling Liberal Democratic Party into turmoil and which may lose its 38-year control of the government in an election scheduled for July 18.

Moreover, Japan's ability to export its way out of the downturn is hampered by pressure from its trading partners. During the July 7-9 economic summit of the world's seven richest industrial countries, the United States will be pressing for a significant reduction in America's trade deficit with Japan.

At the same time, Japan has considerable underlying economic strengths: a high savings rate, a skilled work force and cooperative government and business leadership that is devoted to long-term planning. Once companies get expenses under control, economists and analysts say, these basic strengths will allow Japanese industry to maintain leadership positions in major markets worldwide.

"Japanese companies aren't sitting still," said Kenneth Courtis, economist at Deutsche Bank Group Tokyo. "They are moving like lightning."


A visit to the Suwa Lake region northwest of Tokyo erases all doubt about Japan's ability to remain the world's leading manufacturing center.

This picturesque region--which likes to call itself the Switzerland of the Orient because Japan's watchmaking industry was born here--is now the design and engineering center of the nation's still-expanding computer equipment business.

Here, small companies such as Hiraide Precision are key links in the region's product development chain.

Hiraide generates about $9 million a year in sales filling orders for custom metal parts for making samples of new products. Basically, the work is metal bending, but it is hardly low-tech.

The parts are designed on computers and cut by computer-controlled lasers. So automated is the factory, with its self-propelled carts and robots, that the production line can be programmed to work through the night unmanned. Heating coils embedded in the concrete floors prevent temperature fluctuations that could shrink or expand metal and throw off measurements the tiniest bit.

The precision and speed of hundreds of small factories like Hiraide enable Japanese companies to get working prototypes made within one day. These are projects that might take a month elsewhere.

The Suwa Lake factories supply Japan's large multinationals, such as computer equipment maker Seiko-Epson; their efficiency helps explain the rapid product development and high productivity across Japanese industry.

In the auto sector, for example, sophisticated parts makers with strong design capabilities help Toyota and other auto makers produce new models every four years, compared to Detroit's six years. And, even with the recent advances in the United States, Japanese car companies are still more productive. It took just 132.7 work hours to produce a Japanese automobile in 1989, compared to 158.4 hours for a U.S.-made car, according to a Mitsubishi Research Institute study.

Japanese auto makers have lost market share in the United States recently because the rising yen (after drifting at about 125 yen to the dollar, it gained strength to about 105 this month ) makes Japanese cars cost more dollars. But they are responding, too, moving aggressively with design changes and cutting expenses in order to hold the line on prices.

"These companies are aiming to be competitive at 90 yen or 100 yen to the dollar," said Courtis. He noted that Toyota managed to reduce costs by $400 million in the second half of last year without laying off workers.


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