Den Fujita: From the Japanese Transistor Radio Export Business to Makudonaldo

William Aspray

 

The emergence of Japan as a technological power in the postwar period is closely associated with the portable transistor radio. Companies such as SONY and Toshiba made their fortunes exporting radios and other consumer electronics, particularly to America. But not all Japanese manufacturers of transistor radios fared so well; indeed, the vast majority were small companies that went bankrupt at this enterprise. This paper gives a new perspective on Japanese technology and business practice in the postwar era by tracing the career of a remarkable Japanese entrepreneur named Den Fujita.

Early Life

Fujita was born in Osaka, Japan in 1926 into a family that was unusual by Japanese standards. His father was an importer who made frequent trips to Europe and the United State, and had a more global perspective than most Japanese at the time; his mother was a practicing Catholic. When the Second World War broke out, the father expressed the unpopular belief that his country was sure to lose the war because of the superior US production capacity, and he insisted that his son—then a teenager—learn the English language so that he could succeed after the war. As a high school student, Fujita earned money as a translator.

After the war ended, Fujita’s life was turned upside down by the death of his father and the destruction of his family home late in the war. Fujita needed a place to live and a way to earn a living. He answered an English-language advertisement in the newspaper and accepted a position in General Douglas MacArthur’s office of the occupying forces in return for no salary but a bed on the premises to sleep in. He spent his free time talking with the American soldiers as a way to hone his English language skills, though Fujita looked back on these days and questioned whether the language spoken by the soldiers was the best model. He lived there for three years, while attending courses in the Law Department of the University of Tokyo. Upon graduation in 1951, he took the entrance exam for the prestigious Ministry of Finance and was placed seventh out of more than 5,000 sitting the examination. This score provided an opportunity for a secure and prosperous career as an important government bureaucrat, regarded in Japanese society as a highly desirable career. But to the consternation of his friends, he declined the Ministry’s offer of employment in favor of starting his own trading company, Fujita & Co. Ltd., at the age of twenty-five. Many years later he explained—perhaps tongue-in-cheek—that he might have chosen the more traditional path of Japanese success offered by the Ministry had he not experienced the air conditioning and other creature comforts of American life in MacArthur’s office; but he also noted more earnestly that he had believed at the time that the entrepreneurial path offered greater opportunity.

Import-Export Business

Fujita & Co. became involved in various kinds of import-export activities. It imported 14-inch television tubes from Telefunken in Germany and sold them to the Hiyakawa Radio Company (later part of the Sharp Corporation) for installation in the first television receivers manufactured in Japan. His company exported various goods to Volkswagen in Germany in order to get an import license from the Ministry of International Trade and Industry (MITI). It was not the exports but instead the import business that proved to be highly profitable for Fujita & Co. Fujita & Co. was a large importer of diamonds, but the big profits were in importing handbags and shoes from Christian Dior, the Italian-French haute couture company. Japanese consumers were hungry for Western luxury goods, and Fujita could find immediate buyers for all the Dior products he could import, at mark-ups ranging to 400%.

Fujita & Co. also exported transistor radios to America. The world’s first Japanese radio was not Japanese, but American. The Regency TR-1, manufactured by the I.D.E.A. Company of Indianapolis, Indiana under contract to Texas Instruments, reached the market in 1954. The first Japanese electronic product marketed widely in the United States was a portable radio using tube components rather than transistors. Hundreds of thousands of these tube radios were sold in the United States beginning in 1955. Design emphasized miniaturization—sometimes at the expense of tone quality and battery life. Japanese transistorized portable radios were first sold in America in 1957—the TR-63 manufactured by Tokyo Telecommunications Engineering Company and sold under the brand name SONY.

Although SONY did not make any money on its transistor radio export business during the first several years, it attracted competition from dozens of other Japanese manufacturers before the end of the 1950s. In 1959 alone, more than six million transistor radios were exported from Japan to the United States. With labor costs one-seventh of those same costs in the United States, Japanese manufacturers emphasized hand labor over automated manufacturing. This meant that small firms were not excluded by capital barriers of entry. Thus not only did companies that became consumer giants, such as SONY, Toshiba, Hitachi, and Matsushita, manufacture transistor radios for the American market, so did many smaller, family-oriented companies.

The transistors themselves were manufactured by a number of Japanese companies in the 1950s. These companies, such as Toshiba and Sanyo, would sometimes practice vertical integration and manufacture and sell their own transistor radios. However, they also sold their components to small manufacturers (typically with fewer than 100 employees) that would hire part-time workers to assemble radios for the export trade. Most of these manufacturers did not have employees able to speak English, so they turned over their wares to export companies such as Fujita & Co.

Neither the small assembly companies nor the exporters flourished. SONY and Toshiba moved into a higher-end market niche, which enabled them to succeed where so many of these other Japanese firms failed. These two companies concentrated on making higher-quality transistors and using them to assemble and export their own high-end radios. Then, as the American importers began to place large orders, often for hundreds of thousands of radios at a time, only the large companies had the capacity to fulfill these orders. Thus there was a relentless growth in scale of the Japanese radio manufacturing companies, and companies without the management capability or capital to grow lost out.

In the late 1950s there were about a hundred exporters of transistor radios located in the Ginza district of Tokyo. Of them, only Fujita & Co. survived. As Fujita explains, the problem was with the economies of the learning curve in transistor production. Radios would be contracted by an exporter from a Japanese manufacturer at a fixed price (say $8.00 per unit). But the cost of transistors was rapidly falling, and the American ‘jobber’ set the purchase price based on the current (lower) price of the transistorized components at he time of delivery. It was typical for a Japanese exporter to be offered a lower price (say $7.50 per unit) than they had bought for, reflecting the current lower cost of transistors.

Fujita & Co. was able to remain in the transistor radio export business only by subsidizing it with the Dior import business. This is not to say that the company’s export business was conducted on a small scale or did not make significant profits occasionally, but in the long run it was a losing business model. Fujita & Co. exported hundreds of thousands of radio earphones to General Electric in the late 1950s. In the mid-1960s, the company exported more than 10 million low-cost transistor radios, assembled in Hong Kong from Japanese components and delivered to American oil companies as give-away promotions to sell gasoline.

In order to secure continuing export business with General Electric, the American-based firm pressured Fujita & Co. into importing some of its large console hi-fi systems. Fujita was not happy about these products that he had to import, as he recalled many years later:

Hi-fi stereo. Like a coffee table, [it was] the big ones I imported. But always the door was not fixed, or something was funny. Then I went to Ohio, to the General Electric factory, and I met the manager over there. ‘This stereo, you know, it looks good, but there is a door you put in there that is not fixed.’ He said, ‘Mr. Fujita, are you buying the door or are you buying the stereo? We are sending the stereo to you, not the door.’ But the Japanese do care. Of course the machine must be good, but the Japanese also care for how the outside looks because they put this in the living room, to demonstrate to their friends that ‘this is made in the United States, General Electric.’ The door was like this. [Makes gesture.] It’s very ugly. I imported one hundred big machines, but most of them I couldn’t sell because of the ugly face. I told my friends, ‘I’ll give you this free.’ But still they did not want them because they were a bit ugly. So I threw them into Tokyo Bay.¹ (This and subsequent direct quotations of Fujita, unless otherwise noted, are taken from an oral history conducted with Fujita by the author, May 20, 1994, IEEE History Center, Oral History #204)

New Business Ventures

Fujita soon decided to quit the electronic goods business because he did not want to provide the after-sales service that customers expected. In 1971 he took capital from his trading company to found McDonald’s Japan as a joint venture with McDonald’s Corporation, and assumed the position of Managing Director of this fast-food restaurant business. He had eaten his first meal at McDonald’s in 1967 on a business trip to the United States and was impressed by the restaurant’s efficiency and popularity. He opened his first franchise in the Mitsukoshi department store in the upscale Ginza district of Tokyo in 1971.

 It took Den Fujita months to persuade Mitsukoshi that the Japanese would buck tradition and embrace fast food. Mitsukoshi refused to close the store for the McDonald’s to be built, so Fujita’s team had to construct their outlet overnight. Business was slow until a paper published a photo of a silver-haired old lady wearing a kimono eating a hamburger with a smile.² (Metropolis n.d.)

In 1989 he founded Toys ‘R’ Us—Japan Ltd. as a joint venture between McDonald’s Japan and Toys ‘R’ Us, Inc. One analysis shows how important Fujita’s contribution was to the success of Toys R Us in Japan: ‘In addition to being bicultural and having 20 years experience in doing business in Japan, Mr. Fujita is an expert in retail property in Japan and a graduate of the elite University of Tokyo Law School. His real estate knowledge was invaluable in selecting retail locations and his business and social contacts helped speed up the lobbying efforts at the many government agencies involved in the process.’³ (Wilders n.d. For more background on Toys ‘R’ Us Japan, see Kay 1996)

Both the restaurant and the toy business made a great deal of money for Fujita, and they also turned him into a public figure. As he observed in his oral history, the advantage of these new business ventures over electronic goods is obvious: ‘The handbags need no after-sales service. You just sell them. Hamburgers. Very quick and no after-service.’ At McDonald’s Japan, Fujita introduced many new successful products, including the teriyaki burger. He changed the name of the company to make it and its main product and mascot pronounceable by the Japanese (Makudonaldo, Biggu Makku, and Donald McDonald instead of Ronald McDonald). Eventually he overcame the conventional wisdom that the Japanese would not eat Western food with their hands. Under his guidance McDonald’s Japan became the largest grossing restaurant chain in Japan, and by 2001 it held 60% of hamburger sales in Japan from its 3600 franchise locations.⁴ (See Watson 2006 and BW Online 2001 for more information on McDonald’s in Japan.) In 1986 Emperor Hirohito of Japan awarded Fujita the Blue Ribbon Award (Ranju Hosho) for his outstanding contribution to the development and modernization of the restaurant industry and to the improvement of Japanese dietary habits. Fujita, often outspoken, in the 1970s made this often-quoted remark about the Japanese diet and the importance of eating Western foods:

The reason Japanese people are so short and have yellow skins is because they have eaten nothing but fish and rice for two thousand years […] if we eat McDonald’s hamburgers and potatoes for a thousand years we will become taller, our skin will become white and our hair blonde. ⁵(Fujita, as quoted in Feeley 1999. For context on this statement, which was made in court in 1971, see Carey n.d.)

Styles of Business in the Radio Industry

Fujita himself made no effort to innovate in his radios, although there were steady improvements in the Toshiba transistors he used. What innovations there were came as a result of the demands from the American buyers. These buyers were ‘not good engineers. They just think that if they press a button and the sound comes out, everything is okay.’ The American buyers were, however, particular about specifying color. They usually wanted the cases in red or black, and after a good hot-stamping process was developed around 1960, they were particular about the hot-stamp design used. The number of transistors, independent of functionality, was regarded by the buyers as a selling point. When the buyers wanted eight-transistor radios and Fujita & Co. was making radios that used only six transistors, at the buyer’s request they packed in two additional, nonfunctional transistors. This satisfied the American buyer. ‘This is fake, but [the US] government and [the Japanese] government did not say anything, so I said ‘okay’. Actually, there was not a big difference. Junk is junk!’.

The myths and realities about the quality of Japanese transistor radios in these postwar years is somewhat complicated to untangle. While Fujita disparages the quality of his products in the quotation in the previous paragraph, he was startled on a visit to New York to find one of his Den-oh radios (Den his given name, ‘oh’ the Japanese word for king) in the waste basket of his hotel. When he asked why, he seemed surprised and chastened to be told by the bellboy that it was a ‘junk radio’ which would play only a few hours and was eminently disposable.

In a standard work on the portable radio, Schiffer (1991) argues that by 1959 the Japanese-made radios generally met high standards for components and workmanship, and had ‘graceful lines and lively colors’ that made them aesthetically pleasing. It may be that there was insufficient knowledge to make high-quality transistors and assemble high-quality radios in Japan in the late 1940s and early 1950s. Over time, however, the market became more clearly segmented, with the big manufacturers making primarily high-quality and relatively high-cost portable radios, while some of the smaller manufacturers began to specialize in the bottom end of the market. The bottom end of the market died off in Japan around 1965, when semi-skilled mass assembly moved to Hong Kong for labor arbitrage reasons. MITI was concerned about the quality image of Japanese products, particularly transistor radios because they were such an important source of foreign revenue. In response, the Ministry introduced export inspections to prevent low-quality radios from being exported to the United States. As Fujita recalled in his oral history, however, the inspections were not effective:

Inspections were very poor because before we had inspections we invited inspectors to the factory and gave them food and drink. We told them, ‘The next day we are going to do testing.’ The inspectors said ‘okay’. The next day the inspector did not want to do any testing, just put the stamp here: passed, passed, passed.

Except for the jobbers who came as bargain hunters to prey on the small Japanese firms falling into bankruptcy, Fujita found the American businessmen (they were virtually all male) fair but tough. Indeed, Fujita had great admiration for these jobbers and consciously emulated them. The jobbers were based mainly in Chicago and New York, and in Fujita’s experience they were invariably Jewish.

I learned a lot from Jewish businessmen in America. I was born in Osaka, and Osaka is very well known for business practice, but Jewish practices are certainly different from the Japanese style of business… For example, in Japan we make a contract, and on every contract we put a big stamp. But if you don’t try to keep a contract, it means nothing. In Japan people always say, ‘A contract is a contract, but my son got married, or my son is sick, or my wife is sick, or something else happened I cannot keep the contract. Please forgive me or cancel the contract.’ This happens always. But once you make a contract with these American people, you cannot say ‘sorry’. Very strict! Many times I paid a big penalty because I promised I was going to ship ten thousand pieces of radio on some date but the manufacturer was delayed. I sent a cable to the United States saying [there would be a] one month delay. So they said, ’Okay, pay us a penalty.’ We [Japanese] learned from [these] things. Today everybody knows it, but many years ago the Japanese were different. They broke contracts easily.

Later Career

Fujita is best known in Japan not for selling radios, handbags, hamburgers, or children’s toys, but for writing eight best-selling books on business know-how, telling the reader how to get rich using ‘the Jewish method’ of doing business. In Japan there seems to be no notion that Fujita is perpetuating harmful stereotypes, nor that differences in business practices observed by Fujita may have national rather than racial or religious origins. From the sales figures, it is clear that a sizable fraction of the Japanese populace has been keen to learn how to conduct business from Fujita’s experiences. However, the American audience has been more critical of Fujita’s views.⁶(See Sterngold 1992 and various letters to the editor in response to Sterngold’s article.)

In the year 2000, Fujita was the 27th highest earner in Japan and already a billionaire. Fujita continued to head McDonald’s Japan until age 76, retiring in 2003 when he no longer had the energy to handle daily operations. Just before he had retired, he had taken McDonald’s Japan public. It was the first McDonald’s operation outside the United States to be taken public, and it was the largest public offering in Japan that year.

Another important role for Fujita was his membership from the mid-1990s until the end of his career on the board of Softbank, the creation of one of Japan’s greatest entrepreneurs, Masayoshi Son. As a child, Son had idolized Fujita, and after numerous requests, Fujita finally agreed to meet with Son in 1973, just before Son departed Japan for a career in the United States. Son asked Fujita for career advice, and Fujita recommended the computer business. Son followed this advice and eventually came to hold large shares in various computer media, software, and telecommunications organizations including Ziff-Davis, E*Trade, COMDEX, Yahoo!, Kingston Technology, Japan Telecom, and Vodafone. Fujita died of a heart attack in 2004. He left behind one of the largest death tax liabilities in Japanese history, as well as a statue of a Buddha in his own memory, placed near the location of his first McDonald’s restaurant.

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Notes