Sanyo Electric
June 27, 1960.
Toshio Iue, founder of Sanyo Electric, arrived at Gimpo Airport.
He was the brother-in-law of Konosuke Matsushita, who had built Matsushita, Japan's largest electronics concern, and he himself had been one of the founding pillars of Matsushita Electric Industrial. When the Second World War ended and the Showa Emperor issued the public-office purge, Iue left the company in his brother-in-law's place. The purge was an imperial edict wrung from the throne under pressure from the American military government, a law that stripped of their livelihoods the officials and businessmen who had cooperated with the war.
To the man who had stepped aside for him and gone off to found a company of his own, Konosuke Matsushita transferred the patent on a bicycle dynamo lamp and leased him a factory at a generous rate. Sanyo began in business by selling those lamps under Matsushita's National brand. Taken all together, the firm had the feel of an affiliate of Matsushita Electric, kin tied to kin.
But in Japan the Sanyo name was an obscure bargain brand. People with money bought National and nothing else. Those who came up a little short chose among Toshiba, Hitachi, and Zojirushi, and only when even that was beyond them did they reluctantly settle for Sanyo. The name itself—Three Oceans—had been taken from the Pacific, the Atlantic, and the Indian, yet for all the grandeur of it, the results had never matched the name.
Hemmed in by the limits of the brand, Toshio turned his eyes overseas. Japan's mid-sized electronics firms were already entrenched in the American market, and he would have to fight them for every inch. It was then that the head of a company called the Pauvel Company, which kept an office in Japan, came calling on Sanyo. He wanted to order inexpensive transistor radios as promotional goods for American corporations, and he asked whether Sanyo could meet his unit price.
Thrilled at so rare an opening, Toshio was appalled by the figure the American firm set before him. The quantity was large, but every set he built would lose money. At that, Frank, president of the Pauvel Company, suggested he try making the goods in a joint venture with a Korean company. Labor was cheap in Korea, he said—assemble them there and deliver them. And he named a firm he knew.
Cheongsan Electronics.
Iue liked the name. It carried something of the same feeling as Matsushita—beneath the pines—the company he had built with his brother-in-law. Pine trees, and a blue mountain. Somehow the two belonged together.
The moment he set foot in Korea, one Korean came to mind. Lee Byung-chull. They were classmates from Waseda University. Whenever Lee came to Japan on business he looked Iue up, and the two had grown close. But when Iue urged him to try electronics in Korea, Lee showed no interest. Time and again Toshio pressed him to enter the industry, and time and again Lee refused, saying that in Korea electronics was still premature.
From Gimpo Airport he took a taxi toward the Bando Hotel, where the meeting was set. Korea was familiar ground. As early as 1957 he had established a joint venture there, Samyang Electric, turning out electric fans and space heaters. The country resembled Japan in many ways, and they could make themselves understood; it was not a bad place to do business. Even when other firms swore they would sooner build in Taiwan than in Korea, Toshio held to Korea. Why go all the way to distant Taiwan, he thought, when a country this near could speak with him? Korea's population was larger than Taiwan's, besides.
Riding into Seoul, he reflected that life was a curious thing. He had Korean friends and a fondness for the country, and now an American businessman was the one urging him to put up a factory there. That American had served in Korea, knew the place well, and thought highly of its potential. What he had come to discuss was a subcontract plant for transistor radios, but Toshio was also planning a television factory in Korea. If the firm he met today proved solid and its president sound, he meant to propose a joint television plant as well.
He had a vast ambition: to build an electronics company as large as his brother-in-law's Matsushita, and then to enter the battery business Matsushita shrank from, and found the greatest battery maker in the world. Konosuke had tried to talk him out of batteries, but no one's discouragement was going to put out that dream.
When he reached the Bando Hotel and stepped into the coffee shop, Frank of the Pauvel Company caught his eye, and so did the Korean seated beside him. Young, with a look of sharp intelligence.
So this is Lee Ki-jo of Cheongsan Electronics...
Toshio drew himself up once and walked over to their table.
Ki-jo was talking with Frank, and thinking about the history of Sanyo. For now the company was a third-rate Japanese firm, but in time it would climb as far as second-rate, and, true to a president who had come out of Matsushita, it would grow into an electronics maker turning out goods of every kind. Its ties to Korea ran deep as well. In the early sixties Sanyo had briefly manufactured televisions there, and in the seventies it joint-ventured with Hanil Electric to produce electric fans. People used to say Hanil fans were good because a Japanese motor went into them; in fact, the motor in a Hanil fan was one Sanyo had developed. In the eighties a Korean firm in Gumi produced Sanyo mini-cassette players under license.
Ki-jo remembered the mini-cassettes Sanyo put out in the nineties. He had used one himself. It felt like a poor cousin of the Walkman, with nothing luxurious about it, but it was light, sturdy, and cheap—a practical thing. Turning over Sanyo's relationship with Korea, he concluded that Sanyo, of all firms, would enter a genuine partnership. It was second-tier in home appliances, yet in certain products it stood at the top, and in time it would become a world-class name in batteries. In every respect, Sanyo was the Japanese electronics company that fit the Korean market as it stood.
Frank, who spotted Toshio first, rose and waved. Ki-jo stood with him. A bald man built like a bear was smiling and waving back at Frank. For a Japanese, he was remarkably large, and the first impression he made was an excellent one. Frank introduced them, and they began to talk.
"I've already had a word with the president of Cheongsan Electronics here in Korea. President Lee Ki-jo wants a partnership with Sanyo across the board. The two of you are going to make fine partners."
Ki-jo took up where Frank left off, addressing Toshio in fluent Japanese.
"Cheongsan means to play a pioneering role in Korea's electronics industry. If Sanyo will help us, we can lay a foundation and grow together."
Toshio, who looked like an easy man to like, answered him.
"Korea is a country of great potential. Sanyo is still only a small firm, but I like to think we're a company with potential, just as Korea is."
Ki-jo found him trustworthy. When Toshio had finished, Frank added a pleasant word.
"Two men of potential have found each other. All that's left is to build something large."
Ki-jo laid out a concrete plan for the joint venture. They would build a plant on the outskirts of Busan, bring the parts in, and assemble transistor radios there. Finished sets would leave through Busan Port for the United States, and whatever remained would go to Korea and Japan. Cheongsan Shipping would handle the American exports and keep the freight cheap. Ki-jo would answer for the land and the workforce; Sanyo would supply the parts and the technical guidance.
When he set the blueprint before him, Toshio agreed—and attached a condition all the same.
"If a joint venture is going to last, it needs steady work. Beyond this order from Pauvel, there has to be enough business to keep the plant running."
Ki-jo said the Cheongsan-Sanyo venture would have a market in which to sell.
"Might I ask where?"
"The United States."
Toshio granted the point, but noted that Sanyo was already doing business in America.
"Putting goods on the American market isn't enough by itself. You need a sure outlet. Corporate promotions, like this order, or deliveries into retail shops..."
"There is an American company Cheongsan is allied with."
At that confident reply, Toshio asked in surprise.
"Ah, is there? A home-appliance dealer, by any chance? America has those chain stores."
"No. A hamburger chain."
"A hamburger chain...?"
A little thrown, Toshio looked at Ki-jo. Frank stared at him as well. Ki-jo took out a notebook and sketched quickly—a radio in the shape of Mickey Mouse, and another with a character printed across it. Then he spoke.
"Until now, a vacuum-tube radio has been shaped like a box, and a transistor radio like a flat rectangle."
"That's true..."
Toshio nodded.
"People assume a radio is something adults buy and listen to. But children want radios of their own."
"They would, if the price were low enough. Or else their parents would buy one for them."
"Exactly. And I don't believe any company has yet opened up the transistor radio for children."
"Hm..."
Toshio could follow the plan.
"Are you suggesting we develop a toy radio?"
"Yes. We make the radio as small as we can and keep the performance as modest as we can. The exterior, though, we make into something a child will want, and we sell it bundled with a hamburger meal."
He was speaking from an idea borrowed from the toys once packed into a McDonald's Happy Meal. Frank nodded.
"Parents order hamburgers for their kids, the kids start begging, and some of those parents will buy."
"That's right. And the thing we sell doesn't even have to be a radio."
"What else could we sell?"
Toshio was interested.
"A toy walkie-talkie, or anything that makes a noise and flashes a light. A toy police car whose beacon comes on when you flip a switch, for instance. Toys like that will catch a child's eye."
"Hm..."
Toshio rubbed his chin and turned the plan over. He had always tried to make goods that could stand beside what came out of Sony and Matsushita, and what came back was that Sanyo fell short of them—or that it was an imitation. Head-on competition with first-rate firms had always ended in a bitter loss. But if he sold products the first-rate firms did not make, in places where their goods were never displayed, he might finally show what Sanyo had to offer. Even if those products were electronic toys and toy radios.
"It sounds as if you want to make electronic toys at the Korean plant."
"That's right. First we build the transistor radios Pauvel ordered. If no further orders come in, we hold on with electronic toys. And when another order does come, we build that."
Toshio nodded, then asked.
"May I know the name of this hamburger chain you say you can supply?"
"McDonald's."
"Ah... that place?"
Toshio made a show of knowing it. He said he had bought a hamburger there on a business trip to America. He pictured the students and young people who came and went, and the children who arrived with their parents. It looked like a wager he could win. McDonald's was packed with people, and to make such things cheaply he would need a place where labor cost as little as it did in Korea.
"President Iue, let's try selling toy radios through McDonald's first. If the response is good, orders will come from other restaurants and other companies as well."
"Can you really guarantee delivery to McDonald's?"
"I guarantee it one hundred percent. I'm on close terms with McDonald's major shareholder, and I've already discussed this idea with him."
He could not quite bring himself to say that he was that shareholder. But the assurance in his manner swayed Toshio.
If what this man says is true, it's worth the attempt...
Frank, too, thought there was real possibility in the proposal. America's middle class was deep in the pleasure of eating out, and people were spending more freely than they once had. Unlike his own childhood, when begging a parent for something brought a roar and a cuff, American parents these days were generous with whatever their children asked for. It struck him as a sound idea.
Beyond the proposal for keeping the plant busy, Ki-jo offered a picture of the future.
"There are three home appliances I want to concentrate on with Sanyo. Washing machines, refrigerators, and televisions."
They were the three crown jewels of the appliance trade, what Japan called the Three Sacred Treasures. In the end, the appliance business succeeds on those three items. And then he said the thing most likely to charm the Toshio of this moment.
"Cheongsan has no union, and in the past six years there has not been a single labor dispute."
"Not one?"
Toshio was astonished. In 1958 he had permitted a union to form, and every year since he had been battered by severe labor strife. The fifties and sixties in Japan were a time when the left flourished and the labor movement ran strong—a social current running a precise twenty years ahead of Korea's.
"I can promise you the Cheongsan-Sanyo joint venture will have no labor disputes either."
At that assurance Toshio smiled.
"President Lee, might I ask the secret?"
"Cheongsan runs a vertically integrated set of businesses—brick and cement, coal and briquettes, Miwon seasoning and confectionery, construction and transport."
He explained that he turned those advantages to his people: houses built for them at low cost, daily necessities supplied at staff prices, so that a wage only slightly higher than other firms' produced several times the effect. Toshio of Sanyo exclaimed in admiration.
"Cheongsan is Korea's Mitsubishi."
Frank answered him.
"No. Cheongsan is Korea's GE. General Electric."
Ki-jo smiled faintly.