Japanese-German Business Relations: Co-operation and Rivalry in the Interwar Period

Japanese–German Business Relations

The Nissan Institute/Routledge Japanese Studies Series Editorial Board

J.A.A. Stockwin, Nissan Professor of Modern Japanese Studies, University of Oxford and Director, Nissan Institute of Japanese Studies; Teigo Yoshida, formerly Professor of the University of Tokyo, and now Professor, Obirin University, Tokyo; Frank Langdon, Professor, Institute of International Relations, University of British Columbia, Canada; Alan Rix, Professor of Japanese, The University of Queensland; Junji Banno, Institute of Social Science, University of Tokyo; Leonard Schoppa, University of Virginia Other titles in the series The Myth of Japanese Uniqueness, Peter Dale The Emperor’s Adviser: Saionji Kinmochi and Pre-war Japanese Politics, Lesley Connors A History of Japanese Economic Thought, Tessa Morris-Suzuki The Establishment of the Japanese Constitutional System, Junji Banno, translated by J.A.A. Stockwin Industrial Relations in Japan: the Peripheral Workforce, Norma Chalmers Banking Policy in Japan: American Efforts at Reform During the Occupation, William M. Tsutsui Education Reform in Japan, Leonard Schoppa How the Japanese Learn to Work, Ronald P. Dore and Mari Sako Japanese Economic Development: Theory and Practice, Penelope Francks Japan and Protection: The Growth of Protectionist Sentiment and the Japanese Response, Syed Javed Maswood The Soil, by Nagatsuka Takashi: a Portrait of Rural Life in Meiji Japan, translated and with an introduction by Ann Waswo Biotechnology in Japan, Malcolm Brock Britain’s Educational Reform: a Comparison with Japan, Mike Howarth Language and the Modern State: the Reform of Written Japanese, Nanette Twine Industrial Harmony in Modern Japan: the Invention of a Tradition, W. Dean Kinzley Japanese Science Fiction: a View of a Changing Society, Robert Matthew The Japanese Numbers Game: the Use and Understanding of Numbers in Modern Japan, Thomas Crump Ideology and Practice in Modern Japan, Roger Goodman and Kristen Refsing Technology and Industrial Development in pre-War Japan, Yukiko Fukasaku Japan’s Early Parliaments 1890–1905, Andrew Fraser, R.H.P. Mason and Philip Mitchell Japan’s Foreign Aid Challenge, Alan Rix Emperor Hirohito and Showa Japan, Stephen S. Large Japan: Beyond the End of History, David Williams Ceremony and Ritual in Japan: Religious Practices in an Industrialized Society, Jan van Bremen and D.P. Martinez Understanding Japanese Society: Second Edition, Joy Hendry The Fantastic in Modern Japanese Literature: The Subversion of Modernity, Susan J. Napier Militarization and Demilitarization in Contemporary Japan, Glenn D. Hook Growing a Japanese Science City: Communication in Scientific Research, James W. Dearing Architecture and Authority in Japan, William H. Coaldrake Women’s Gidayu and the Japanese Theatre Tradition, A. Kimi Coaldrake Democracy in Post-war Japan, Rikki Kersten On the Margins of Japanese Society, Carolyn S. Stevens The Right to Life in Japan, Noel Williams The Dynamics of Japan’s Relations with Africa, Kweken Ampiah Treacherous Women of Imperial Japan: Patriarchal Fictions and Patricidal Fantasies, Hélène Bowen Raddeker Japan, Race and Equality: the Racial Equality Proposal of 1919, Naoko Shimazu Japanese–German Business Relations: Cooperation and Rivalry in the Inter-war Period, Kudo Akira

Japanese–German Business Relations Cooperation and rivalry in the inter-war period Kudo Akira

London and New York

First published 1998 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2001. © 1998 Kudo Akira All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Kudo, Akira, Japanese–German Business Relations : Cooperation and rivalry in the inter-war period / Kudo Akira. p. cm. – (Nissan Institute/Routledge Japanese studies series) Includes bibliographical references and index. 1. Japan—Foreign economic relations—Germany. 2. Germany—Foreign economic relations—Japan. 3. Technology transfer—Japan—History—20th century. 4. Technology transfer—Germany—History—20th century. 5. Investments, Japanese—Germany— History—20th century. 6. Investments, German—Japan—History—20th century. 7. Competition, International—History—20th century. I. Title. II. Series. HF1602.15.G3K83 1998 337.43052–dc21 97-42299 CIP ISBN 0–415–14971–1 (Print Edition) ISBN 0-203-01851-6 Master e-book ISBN ISBN 0-203-11623-2 (Glassbook Format)

Contents

List of tables Series editor’s preface Acknowledgments Introduction

viii ix xi 1

Part I Overview 1 Japanese–German business relations I Japanese–German relations in the inter-war period II Strategy choices of German companies III Forms of business relationships IV Conclusion

11 11 18 21 32

Part II Export strategy 2 Competition and cooperation: I.G. Farben, international dyestuff cartels, and Japan I German dominance and the Japanese challenge in the 1920s II The Japan strategy of the international dyestuff cartels III The conclusion of special market agreements IV The Mitsui indigo agreement V Conclusion

35 35 37 42 44 48

3 Rivalry between German and Japanese trading companies: C. Illies & Co. and Mitsubishi Shoji I The actors II The battle III Conclusion

49 49 55 64

4 Competition and cooperation among German companies: Krupp, I.G. Farben, and Japan’s synthetic oil project I Japan’s project for synthetic oil production and Krupp’s activities in Japan

66 67

vi

Contents

II III

Action taken by Oshima of Imperial Fuel, and Krupp and I.G. Farben’s response Conclusion

74 85

Part III Licensing strategy 5 Downstream transfer of the Krupp-Renn process I The Krupp-Renn process and Japanese businesses II The plant-construction process III The technology-absorption process at Mitsubishi Mining’s Chongjin plant IV Conclusion

89 89 93 100 107

6 Downstream transfer of the Haber-Bosch process I Diffusion of the Haber-Bosch process in Japan II Technological absorption of the Haber-Bosch process by Taki Fertilizer Works III Conclusion

110 111

7 Downstream transfer of the I.G. process for synthetic oil I I.G. Farben’s licensing strategy and the Japanese synthetic oil industry II Development of licensing strategy III Probing the unsuccessful results IV Conclusion

130

8 Upstream transfer of the Shimadzu process I Technological cooperation on an equal footing: the establishment of Ost Lurgi II An attempt at licensing upstream III Revision of the technological cooperation IV Conclusion

148

116 127

130 133 140 144

149 152 157 161

Part IV Direct investment strategy 9 Giving up control: Siemens, Fuji Electric, and Fujitsu I The period of forced export strategy II From localization of sales to localization of manufacturing III Fuji Electric’s management crisis and the move toward cooperation IV Forced localization of automatic switchboard manufacturing V The forced separation of companies VI Conclusion

165 166 177 187 195 207 215

10 Concluding remarks Summary

218 218

Contents

Ambition and pride Notes Bibliography Index

vii

220 223 262 279

Tables

1.1 German trade with Japan, 1913–38 1.2 Foreign ownership of industrial rights in Japan (as of December 7, 1941) 1.3 Ownership and management forms of foreign-affiliated companies, 1931 4.1 Enquiries from Japan regarding high-pressure reaction pipes (as of December 1938) 4.2 Enquiries from Japan regarding high-pressure reaction pipes, 1938 4.3 Enquiries from Japan for which permission to export was refused (as of January 25, 1941) 5.1 Japanese companies granted licenses for the Krupp-Renn process, 1937–42 5.2 Tonnage of pig iron produced by rotary kilns, 1940–5 6.1 Introduction of the Haber-Bosch process in Japan, 1935–40 6.2 University and college graduate personnel, Taki Fertilizer Works (as of May 1934) 6.3 University and college graduate personnel, Taki Fertilizer’s ammonium sulphate plant, 1943 6.4 Organization of general and operative personnel, Taki Fertilizer Works (as of December 31, 1938) 6.5 Numbers of German engineers and foremen dispatched to Taki Fertilizer Works, 1936–8 9.1 Western Electric’s market share based on Siemens’ proposal, 1913 9.2 Implementation of Communications Ministry’s telephone system expansion plan (business years 1916–36) 9.3 Adoption of automatic switchboards for public telephone system (business years 1926–9) 9.4 Ministry of Communications’ company contracts (business years 1926–31) 9.5 Business results of Fuji Electric (business years 1923–37)

21 24 27 67 68 73 92 95 114 117 117 118 121 168 178 181 182 184

Series editor’s preface

‘. . . [W]e are a people whose glorious history will bear to be held up to the gaze of Western nations. We have learned a great many things from the West, but there are some instances of our having outstripped our tutors.’ So wrote Count Okuma in Fifty Years of New Japan, published in 1910, some five years after Japan had emerged victorious in the Russo–Japanese war. Over the eighty-seven years that have elapsed since those words were written, the history of Japan’s relations with the rest of the world has passed through phases more turbulent than Okuma could probably have imagined. The tragic and terrible history of the 1930s and 1940s gave way, however, to decades in which the Japanese forged an amazing (and often deserved) reputation for economic development and efficiency. The idea of the Japanese outstripping their tutors is no longer as exotic as it must have sounded to an English-speaking readership in 1910, but its content has been radically changed with the passage of time. Japan has been widely accused by some Americans and others of exploiting American goodwill and soft attitudes since the 1950s in such a way as to maximize ruthlessly the interests of Japanese corporations and the Japanese economy in general. Whatever the truth of these accusations, during the late 1990s many influential Japanese have been moving to the view that forces of globalization leave Japan little choice in terms of national interest but to move toward a more open, less controlled, form of economic, political and social order. Entrenched resistance to such a fundamental systemic change remains strong, but the balance of influences is shifting significantly. How the Japanese seek to resolve the quandary of how far they can preserve a distinctive Japanese identity and practice in an increasingly globalizing world is fascinating to watch. The Nissan Institute–Routledge Japanese Studies Series seeks to foster an informed and balanced, but not uncritical, understanding of Japan. One of its aims is to show the depth and variety of Japanese institutions, practices and ideas. Another is, by using comparison, to see what lessons, positive and negative, can be drawn

x

Series editor’s preface

for other parts of the world. The tendency in commentary on Japan to resort to outdated, ill-informed or sensational stereotypes still remains, and needs to be combated. The ability of Japanese industry to learn quickly from technologically more advanced industrial systems and to raise productivity rapidly is well known from the period since 1945. Many books and papers have been published detailing the intensity of technological learning processes undertaken by large Japanese corporations and even by relatively small companies. As the technological gap narrowed, so a reverse process has emerged, in which Japanese firms invest overseas and a ‘learning from Japan’ phenomenon ensues, which also excites intense analytical interest. What is less well known is how such inter-relationships were embarked upon in the inter-war period, At that time, for the most part, Japanese firms were in their techniques far behind their Western counterparts, but determined to catch up. Professor Kudo, in this pioneering and detailed study, examines the interactions between selected Japanese industries and their German counterparts during the 1930s. He shows that in many cases the technical and organizational gaps between the German and Japanese firms were so great that firm-to-firm relationships embarked upon quickly broke down, with great frustration felt on both sides. At the same time, the sense of extreme pride, which drove Japanese entrepreneurs to seek to master German industrial processes in as short a time as possible, at times also induced perceptions of Japanese threat among German industrialists. Given the political links between the German and Japanese States during the 1930s, it is at first sight surprising that so much of the economic relationship ended in failure; but, in analyzing in detail how this happened, Professor Kudo gives us numerous intriguing clues about the ultimate secrets of Japanese economic development. J.A.A. Stockwin

Acknowledgments

In writing this book, I have benefited from assistance, both direct and indirect, from many individuals and institutions. Those who assisted me directly in the compilation of records and other materials are acknowledged in the footnotes and bibliography. Of the others, although it would be impossible to include everyone, I would like to acknowledge some of the individuals and institutions from whom I received direct assistance. During two stays in Germany in 1983–5 and in 1988, I benefited greatly from the help of Professor Wolfram Fischer of the Free University of Berlin and from the assistance of the Alexander von Humboldt-Stiftung. I was greatly assisted also in archival research by Ms Rangnick of the AEG Firmenarchiv; Ms Fromm of the BASF Firmenarchiv; Mr Hans Cronmüller of the Robert Bosch Firmenarchiv; Mr Willi Bischofberger and Mr R. Syinnai of the CIBA–Geigy Firmenarchiv; Mr Gerhard W. Patt of Dornier Archiv; Dr Wolfgang Metternich and Ms Schreier of Hoechst Firmenarchiv; Dr Renate Köhne-Lindenlaub and Mr Herwig Müther of the Fried. Krupp Historisches Archiv; Ms Hanna Becker-Heß of the Metallgesellschaft Historisches Archiv; Mr Reinhard Manter of Rheinmetall Berlin; and Dr Lothar Schoen and Mr Bien of the Siemens Archiv. In my research in Japan, I was assisted by Mr Chizawa Tadahiko of Fuji Electric; Mr Morimoto Tadashi of Kawasaki Steel; Ms Ishida Yasuko of Japan Storage Battery; Mr Sekihara Yoshinobu of Sumitomo Chemical Industries; Mr Yasuda Shoichi and Mr Takahashi Yoshihisa of Taki Chemical; and the late Mr Sakamoto Eiichi. In the compilation of Japanese research materials, I benefited from the assistance of many other persons, including Professors Wakimura Yoshitaro, Uchida Hoshimi, and Morikawa Hidemasa, Mr Ariga Teru, and Mr Okuda Hideo, as well as my friends Professors Nakamura Seishi, Saito Tomoaki, Miyajima Hideaki, and Miwa Munehiro. I also acknowledge with much sadness the assistance I received from the late Mr Watanabe Isaburo and the late Mr Takahashi Takeo. Many others assisted me in the preparation of this book. They include: for their comments on the original papers: Professors Kaku Sachio, Hashimoto Juro, Takeda Haruto, Abe Takeshi, Kikkawa Takeo, Hasegawa Shin, Kagotani Naoto, Yuzawa Takeshi, Udagawa Masaru, Miwa Ryoichi, Harumi Namiko, Motomiya Kazuo, Tohara Shiro, Kato Eiichi, Baba Hiroji, Hirata Yoshihiko, Takumi Mitsuhiko, the late Jürgen Brockstedt, Hannes Siegrist, and Harm Schröter; for their organization of Englishlanguage presentations: Professors Hans Pohl, David J. Jeremy, Geoffrey Jones, Hara Terushi, Dominique Barjot, and Dr Andrew Godley; for translation: Professor

xii

Acknowledgments

Lawrence L. Hanson, Ms Isabella Gallaon-Aoki, Mr Moriya Fumiaki, Professors Edmond R. Skrzypczak, Stephen W. McCallion, Simon Partner, and Mr Stephen Johnson; for typing and proofreading: Ms Lynn Cornell, Ms Nozaki Rumiko, Ms Kudo Hanae, and Ms Tsuna Satomi. For help in arranging publication: Professors J.A.A. Stockwin, Banno Junji, and Leslie Hannah; for editing the English-language version: Ms Tatiana Korinfsky; for matters related to publication: Ms Vicky Smith at Routledge. Needless to say, the responsibility for the contents of this book as they are presented here resides entirely with me. Since 1987, portions of this book have appeared in a variety of English-language publications. In addition, the 1992 Japanese-language book Nichidoku Kigyo Kankeishi (A History of Japanese–German Business Relations) provided material that had not yet appeared in English. The English-language publications are as follows (note, however, that all of these have been substantially expanded or otherwise modified for this book): ‘I.G. Farben’s Japan strategy: the case of synthetic oil,’ Japanese Yearbook on Business History 1988, 1989; ‘Japanese technology absorption of the Haber-Bosch method: the case of the Taki Fertilizer Works,’ in D. J. Jeremy (ed.) The Transfer of International Technology: Europe, Japan and the USA in the Twentieth Century, Aldershot, 1992; reprinted in G. Jones (ed.) Coalitions and Collaboration in International Business, Aldershot, 1993; ‘Japanese enterprises in Germany: attempts at technical–industrial cooperation prior to the Second World War,’ in H. Pohl (ed.) Der Einfluß ausländischer Unternehmen auf die deutsche Wirtschaft vom Spätmittelalter bis zur Gegenwart, Stuttgart, 1992; ‘The Tripartite Pact and synthetic oil: the ideal and reality of economic and technical cooperation between Japan and Germany,’ Annals of the Institute of Social Science (University of Tokyo), no. 33, 1992; and ‘The transfer of leading-edge technology to Japan: the Krupp-Renn process,’ Japanese Yearbook on Business History, vol. 11, 1994. Permissions to use these materials were provided by the following individuals and institutions: the Business History Society of Japan; Professor David J. Jeremy, the Manchester Metropolitan University; Franz Steiner Verlag Wiesbaden GmbH, Stuttgart; and the Institute of Social Science, the University of Tokyo. Kudo Akira Hongo, Tokyo July, 1997

Conventions

Throughout the book Japanese names appear in the style of that language; that is, surname first and given name second.

Introduction

This book documents an attempt to approach the history of Japanese– German relations from a business history perspective. It deals with the twenty-year period between the First and Second World Wars – the so-called inter-war period. To begin with, I offer an outline of the topics and of the problems raised, as well as delineating the viewpoint presented in this book. JAPAN AND GERMANY IN THE INTER-WAR PERIOD Recently, the study of the history of Japanese–German relations has again become a focus of interest. There has been a profusion of studies dealing with the history of the bilateral ties both in Japanese studies in Germany and in German studies in Japan.1 Behind this growth of interest is the increasingly interdependent economic relationship between Japan and Europe, as well as the consequent outbreak of trade conflicts. Another factor is the rediscovery of Japanese–European relations as the ‘missing link’ between the three advanced economic poles of the United States, Europe, and Japan. Until now, however, there have been gaps in the studies of the history of Japanese–German relations. First, most studies have concentrated on the period up to the nineteenth century, focusing in particular on the visits to Japan of Engelbert Kämpfer and Philipp Franz von Siebold in the Edo period, as well as on the opening of Japan in the late Edo and early Meiji periods. There are still many aspects of the twentieth-century story, particularly the period after the First World War, that await clarification.2 Second, most studies so far have centered on the political and diplomatic history as well as the history of cultural exchange.3 We can thus argue that a socio-economic history approach focusing on trade relations, business management, and technology transfer is still in its infancy. In my opinion, this focus constitutes a serious gap.4 The existence of this gap is the fault both of Japanese researchers studying German social and economic history on the one hand, and of German Japanologists on the other. In the case of the Japanese, their treatment of the German relationship

2

Introduction

with Japan has been sparse. Most of their research has looked at Germany in isolation or has not progressed beyond treatment of Germany as material for periodization and typology. Perhaps this is a relic of the pragmatic social-policy school approach. Even in the case of studies that have attempted to place Germany in the frame of the global or international economies, there has been in general little focus specifically on Germany’s relationship with Japan. On the other hand, in the case of Japanese studies in Germany, it is only now that a socio-economic approach is emerging. There are several reasons for the gaps in a socio-economic approach to the history of Japanese–German relations, particularly in the period after the First World War. The most important of these, I think, is the existence of a ‘teacher–student’ relationship between Germany and Japan. First, for more than 100 years, from the early Meiji period to recent years, the relationship between the two nations was one in which Germany was the ‘teacher’ and Japan the ‘student.’ The influence of the ‘German model’ as an object of study is apparent in virtually every branch of Japanese society, including law, politics, the economy, technology, social structure, philosophy, and science.5 For the most part, until the First World War, these studies took place at the government level. Economic relations were no exception to this. Economic ties were formally opened between the two nations with the signing of the Japan–Prussia Friendship and Trade Treaty in January 1861 (effective from January 1864). Later, with the formation of the NorthGerman Confederation and the emergence of the German Reich, the parties to the agreement changed, but from this point onward the basic character of the economic relationship between the countries remained that of teacher and student, primarily through the hiring of German nationals to assist the Japanese Government. A representative example of this is the introduction of German technology into the government-run Yawata Steel Works. Around the turn of the century, however, a big change occurred. The unequal treaty system characterized by extra-territoriality and lack of control over customs duties was replaced after the Sino–Japanese War by the April 1896 Japanese–German Commerce and Navigation Treaty, which called for an immediate end to extraterritoriality, and the subsequent resumption of control over tariffs by Japan through the revised Commerce and Navigation Treaty of June 1911. During this period, modern capitalistic enterprises also were being formed and developed in Japan. European and American companies began to adopt various strategies for entering the Japanese market, including direct investment. As a result, the government-level relationship characterized by the hiring of European and American nationals gave way to inter-firm relationships, increasingly involving the transfer of technology and management. Japanese relations with Germany were no exception to this pattern. Second, as I will explain in more detail in Chapter 1 (see section I, 3), the image of the inter-war relationship between Japan and Germany has often been one of close

Introduction

3

political ties, but the reality was a relationship centered more on economic and technological relations. If we look even at the central basis of the Tripartite Pact of September 1940, which represented the political ties between Japan and Germany at their closest, we will find that it lay primarily in economic and technological cooperation. And since, as we have just seen, economic and technological ties were created at the corporate and not the Government level, we can see a cool economic and technological calculation at work, quite the reverse of a warm political relationship. Third, German technology and management had an indisputably vital influence on Japanese heavy and chemical industrialization and business development during the inter-war period. This influence has not been sufficiently appreciated in other studies. Of course, government-level study of Germany continued after the First World War. In the economic and technological fields alone many examples can be cited, including the influence of the German model in the Ministry of Commerce and Industryled industrial rationalization movement, the German influence in the scientific management movement, the Ministry of Commerce and Industry’s study of the Volkswagen (people’s car) Plan, and the study of the German precedent in the 1942 establishment of the Board of Technology. However, as will be observed later in this book, the transfer between companies of technology and management methods occurred on a much wider basis than these specific cases indicate. Finally, in response to the inevitable question ‘Why should we attach importance to Germany?’, I re-emphasize the importance of the economic and technological aspects of Japanese–German relations in the inter-war period. It is no exaggeration to say that the most significant event in twentieth-century Japanese history has been the launching of the Pacific War and Japan’s subsequent defeat, which is widely ascribed to the overwhelming gap in productive power between Japan and the United States. This gap was, in turn, one consequence of Japan’s industrialization since the late Edo and early Meiji periods. In any consideration of why Japan was the only non-Western nation among advanced economies to enter the industrialization race, the problem of Japan’s failure of productive power in the Pacific War has to be included. Why did Japan enter into a war that, if one were to calculate based on productive power, was utterly reckless? It is superficial to reply that the decision was the result of the US embargo on exports to Japan and particularly on oil. That is merely parroting the reasons given by the statesmen of the time. We can retrace the path to 1945 via the Russo–Japanese War, the Manchurian Incident, and the Sino–Japanese War. For example, the period following the Russo– Japanese War saw a deterioration in the standards and practices of Japanese diplomacy which accelerated during the period starting with the annexation of Korea through to the invasion of China. The fact that the enhanced political ties between

4

Introduction

Japan and Germany, from the Anti-Comintern Pact of November 1936 to the Tripartite Pact of September 1940, were decisive in this process has been well illustrated by previous studies of Japanese–German relations. But one factor of particular significance in the ties between Japan and Germany was technology. The high regard in which German technology was held by the Japanese may be seen as one motivating force for the strengthening of political ties between the two countries (see Chapter 1, section I, 1). Therefore, it is necessary to analyze Japanese–German relations from the viewpoints of both politics and technology, recognizing the importance of technology as a motivating factor; and this analysis must also be tied to the events of 1945. In the above, I have pointed to the reasons for the lack of a socioeconomic history approach to the study of Japanese–German relations. This gap is particularly wide when dealing with the inter-war period. The purpose of this study is to fill that gap. VIEWPOINT History of international business relations This book aims to give a historical analysis of inter-firm relations, within the broader scope of the study of international business relations. Let me try to outline what I mean by this concept. What are the special features of modern corporate organizations? A theory that has had a great impact on studies of business history and the theory of multinational enterprises has been Alfred D. Chandler, Jr’s model of business strategy and structure.6 As is well known, Chandler studied large American firms from the late nineteenth century through the first half of the twentieth century, using British firms of the nineteenth century as a basis for comparison. He concluded that the characteristics of the modern firm are: first, the running of plural business units (factories and offices); second, the development of multiple functions, such as manufacturing, marketing, and materials’ procurement; and, third, the coordination of these functions through a managerial hierarchy. Alluding to the function of salaried and professional managers in controlling this organization, Chandler dubbed the modern firm a ‘managerial enterprise.’ What was the environment in which this type of enterprise came into being? Chandler explained this phenomenon by linking organizational structure to business strategy, pointing to the special features of the US corporation in the first half of the twentieth century. Business strategy is usually defined as a long-term response to the environment of the time, and expressed as decision making taken on long-term allocation of business resources such as goods, capital, labor, and information. According to Chandler, the USA of the early twentieth century saw the formation of

Introduction

5

large corporations, some of which chose the strategy of vertical integration and often developed a centralized-function organizational structure. Others undertook a product diversification strategy, often with the result that a decentralized multidivision organizational structure emerged. This is the origin of Chandler’s thesis that ‘structure follows strategy.’ Chandler’s argument opened up the way for historical analysis of the ‘black box’ that the internal workings of the corporation had represented. Through the framework it set up of strategy and structure, its impact has been felt not only in business history and the history of multinational enterprises, but also in management studies and economics.7 There have been various criticisms of this approach, however. Scholars have expanded Chandler’s argument by pointing out that, depending on the period, industry, and location, diversified companies have developed many alternative organizational structures to the multi-divisional organization – alternatives such as divisional headquarters, matrix structures, and strategic business units. Other criticisms directed at the relationship between strategy and structure posited by Chandler have come from comparative studies of regions and countries outside the United States. For example, into this category fall studies of Germany and Japan that point to the rapid move to product diversification as a result of management resource restraints, and differences in the environment and entrepreneurial opportunities.8 There is even a revisionist approach that reverses Chandler’s thesis of strategy-led organizational structure.9 Other scholars, however, have taken issue with the view that vertical integration and product diversification alone are sufficient as strategic responses to the environment depicted by Chandler. Functional strategies and competitive strategies also must be considered. Another basic objection is that strategy and structure should not be the only subjects considered in business history. One might add other themes besides strategy and structure for business history: for example, business leadership, industrial relations within as well as outside of firms, collaborative agreements such as cartels, and governmental policies. My own approach is that it is necessary to take all of these criticisms into account and develop a new framework – a ‘post-Chandler model.’ Chandler himself recently pointed to the importance of environmental considerations, and he seems now to pay greater attention than before to the environment in which the corporation is situated. My interest in this study is in the analysis of business activities in an international context in an attempt to demonstrate the impact of environmental factors. In addition, I think there is a growing need for a new framework for the history of multinational enterprises, which has, until now, been the primary medium for the study of the history of international business relations. It was Mira Wilkins who pioneered the study of the history of multinational corporations. But her studies were focused on American multinational entities. Eventually other studies followed

6

Introduction

– of European, Japanese, and other small countries’ multinationals, as well as those of developing countries. Partly as a result of this diversified scope, it became increasingly difficult to put forward a general theory of multinational corporations. Therefore, while the 1960s witnessed the emergence of theories of the rapidly developing multinational enterprise, complementing or substituting for theories of capital export and direct investment, in the 1970s these theoretical studies multiplied, so that by the 1980s the field had become a maze. Against such a background, the so-called eclectic theory developed by John Dunning10 provides a most useful key and framework for a historical analysis. Among Japanese historians of business, interest is growing in international relations and the history of international business relations. The reasons for this include the increasing global reach of Japanese companies, as well as the growing internationalization of Japanese management, linked to the changed nature of multinational theories. Looking back on the activities of the Business History Society of Japan, planned studies of the history of multinational companies, of general trading companies, and of companies with international ties have become prevalent, particularly since the latter half of the 1980s. Since then, a growing number of empirical studies, while not claiming to be ‘histories of international business relations,’ have directly addressed the issue of international business relations.11 I expect studies related to the history of international business relations to continue to grow in number, establishing this field as a separate area of study. There is still a need to add to the debate on methodology, however, in parallel with the pursuit of empirical studies. By the early 1980s, at least three major issues had emerged in the methodology of business history in Japan: Nakagawa Keiichiro’s proposal for a structure-oriented history of international business relations, Yonekawa Shin’ichi’s ‘absolute contemporary comparisons,’ and Tsunoyama Sakae’s ‘theory of world systems’ to address the methodology of the history of international business relations.12 But it is still difficult to assert that a methodology for this field has been truly established. Although the field is currently somewhat confused from a methodological point of view, it is necessary for future studies to satisfy the following conditions. First, we must learn, albeit critically, from the multinational history approach represented by Wilkins. Second, we must do the same for Chandler’s approach to business history linking strategy and structure. And, third, we should base our analyses on the study of historical materials from both sides of the business relationship. Three forms of international business relations A company wishing to pursue an international business development strategy repeatedly chooses from among a variety of strategies including diversification,

Introduction

7

vertical integration, and multinationalization as well as strategies for local activities. Whichever selection it makes, the corporation will be establishing international inter-firm relationships. The corporation can make three major choices with regard to business development: exports; licensing in a wide sense; or direct investment. The media for creation of international ties are goods, technology, capital, personnel, information, and management organization. The movement of these will generate either exports, licensing, or direct investment. The history of international business relations looks not only at exports or foreign direct investment (studies of multinational enterprises tend to focus on FDI), but at the three forms together. In other words, it observes the three forms as the alternatives open to a company when it wishes to pursue international business development. I believe that a study of these issues must take into account the following: first, the various strategy options, particularly diversification, vertical integration, multinationalization, and types of local business development; second, organizational structure choices, especially the management of local organizations; and third, the mutual relationship between strategy and organizational structure, as well as local activities and their results. It is also vital to analyze the strategies, organizational structure, activities and performance of the companies in the local market, as well as the political response of the local government. In other words, a two-sided perspective on inter-firm relations is required. THEMESAND STRUCTURE The rest of the Introduction summarizes the themes and the structure of this book. Chapter 1 in Part I provides an overview of Japanese–German relations during the inter-war period, from the viewpoint of business history, focusing on the environment, strategies, and forms of inter-firm relations. Chapters 2–9 provide case studies. These have been selected not based on arbitrary criteria, but on methodical criteria under the condition of limited available sources. Only based on these methodical criteria is it possible to move from individual details to a broader picture of the totality, namely the history of Japanese–German business relations. In order to achieve this broad picture, it is necessary, first, to cover various forms of international business development, namely: exports, licensing, and direct investment. Second, it is necessary to cover at least such industries as iron and steel, machinery, electrical machinery, and chemicals. Third, it is necessary to consider not only the German companies in Japan, but also Japanese companies in Germany. Fourth, it is necessary to cover the entire inter-war period. For the case studies, it is important to look at information relating to business activities and internal decision making, particularly where they are atypical. It is necessary also to deal with examples of failure as well as success. Many of the

8

Introduction

stories of failure are revealed for the first time based on company records, and these sometimes illustrate inter-firm relations better than do the success stories. Large companies generally have the most complete and best-kept company records, so it is necessary to deal mainly with such companies. Since the role of large companies increased markedly in Japanese–German inter-firm relations after the First World War, this focus hopefully can be forgiven. Based on the above considerations, Chapters 2–9 are divided into three parts: ‘Export strategy;’ ‘Licensing strategy;’ and ‘Direct investment strategy.’ Part II – Export strategy – looks at inter-firm relations based on Germany’s exporting of chemical products and machinery to Japan. In terms both of quantity and of quality, German exports were the major item in the inter-war trade between Japan and Germany, and, looking at the change in product structure during this period, exports were increasingly concentrated in the chemical and machinery sectors. Chapter 2 examines the dyestuff export strategy toward Japan of the German chemical giant I.G. Farben, focusing on its relations with international dyestuff cartels. Chapter 3 considers the competition between German and Japanese trading companies: there was competition between C. Illies and Mitsubishi Shoji for exports of anti-aircraft guns to Japan. Chapter 4 analyzes the competition and cooperation between Krupp and I.G. Farben, two representative manufacturers exporting machinery to Japan. Part III – Licensing strategy – examines four examples of licensing. Chapter 5 looks at the successful licensing of Krupp’s advanced Krupp-Renn technology simultaneous with equipment exports. Chapter 6 investigates I.G. Farben’s success in licensing its Haber-Bosch process for synthetic ammonia in Japan, focusing on the trial intoduction of a Japanese recipient. Chapter 7 turns to I.G. Farben’s failure in licensing its process for synthetic oil in Japan. Chapter 8 considers the case of licensing by a Japanese company to Germany: the Shimadzu method of Nippon Denchi (Japan Storage Battery). This was a failure, but in considering the reasons why it failed we can clarify some of the special features of Japanese– German business relations. Part IV – Direct investment strategy – takes as its subject a major example of German direct investment in Japan, looking at Siemens’ strategic choices in entering the telephone equipment market. Finally, Chapter 10, the conclusion, ties up Chapters 1–9 by examining strategy, organizational structure, and technology and management transfer in the light of the problems as outlined in this introductory discussion.

Part I Overview

1 Japanese–German business relations

I JAPANESE–GERMAN RELATIONS IN THE INTER-WAR PERIOD 1 Looking to German technology Change occurred in trade between Japan and Germany at the beginning of the twentieth century, with Japan increasing its imports of German industrial products such as machinery and chemicals. The quantity of machinery imported from Germany to Japan in the period immediately preceding the First World War equaled that from the United States, and almost reached the level of imports from Britain.1 This trend toward increased imports abated temporarily due to the outbreak of the First World War; after the war, however, there was a resumption of Japanese demand for German industrial products. One reason for this trend was the limitations of Japanese heavy and chemical industrialization. With the First World War providing the momentum, the Japanese economic structure changed in the direction of heavy and chemical industrialization, and there was a change also in the structure of demand for heavy and chemical industrial goods. However, there was a lag in the development of the supply side of the industrial structure. A second reason was that, at the time, industrialized nations in continental Europe were locked in fierce competition and were aggressively expanding into other markets; also, they were trying to maintain their competitiveness by reducing prices. As a result, imports from continental Europe to Japan almost tripled from 1913 to 1929, the main imports being heavy and chemical products such as iron and steel, machinery, and ammonium sulphate. Japan became a major importer of these materials in the global market, while Germany led the continental European industrialized nations.2 The demand was not only for German industrial products; there was also a movement to introduce superior German technologies themselves. The technological shock felt by the Japanese Government, army, navy, and enterprises during the First World War was enormous,3 and the most powerful shock came from Germany. One

12

Overview

of the reasons why the Japanese military looked anew to German technology was that, ironically, while fighting Germany in the First World War, the military recognized the superiority of German weapons, especially submarines and airplanes. The Japanese also needed German know-how in order to use the German patents that Japan had claimed as enemy assets. Moreover, Japan, as a member of the Allied Nations, had access to German technology during the process of designating German plants for war reparations. In addition, Japan realized the importance of proper preparations and modernization of the military in undertaking a total war. With these considerations in mind, the Japanese looked to Germany’s experience. Also we cannot ignore the fact that the Anglo–Japanese Alliance was abandoned at the 1920–1 Washington Conference. This had important political and military repercussions.4 Germany, having lost the war, was strictly limited, by the Versailles Treaty, as to the scale of military production as well as the application of military technologies. The enterprises that had produced military equipment thus regarded exports of products and sales of technology to the Japanese market as an important strategy for survival. It was not only the military that turned for assistance to German technology, however. Japanese corporations also looked toward the introduction of German technology as they initiated heavy and chemical industrialization. (This will be discussed in section III, 2.) Here, let us consider one example and quote from the memoirs of Nakahara Nobuhei, who later became the top manager of Ogura Sekiyu (Ogura Oil) and of Toa Nenryo Kogyo (Toa Fuel Industry): I resigned from Fuji Seishi [Fuji Paper] in 1919 and went to study in Germany. . . . Before leaving for Germany, I went to say farewell to Professor Kawakita Yoshisato, the head of the applied chemistry department. The professor told me that recently the development of American science and technology was very rapid. So he recommended that I go not to Germany, but to the United States. However, at that time, respect for Germany was very strong. When I heard this, all I thought was, ‘What on earth is he talking about?’ But when I think about it now, Professor Kawakita was a very far-sighted man. . . . In Germany, I spent my time visiting and inspecting factories. At the Badische, Hoechst, Bayer, and other factories, I was escorted by Japanese military officers who were there to complete end-of-war procedures. At that time, many Japanese were staying in Germany, planning to introduce German technology, for example, Mr Yukawa Kankichi of Sumitomo and Mr Inagaki Heitaro of Furukawa. I asked Mr Kubota’s advice [Kubota Shiro, former president of Fuji Paper] about introducing the production of synthetic acetic acid and carborandum (when I left Japan, this was suggested by Mr Kameyama Naoto of Tokyo University).5

Japanese–German business relations

13

In these remarks we can glimpse the near-religious respect the Japanese held for German technology at that time. Taking another example, Togo Shigenori (later foreign minister), who was in Berlin as Japan’s first consul in Germany following the First World War, recollected6 that he was busy as the only staff member of the Japanese Embassy greeting all the Japanese military officers and engineers visiting Germany in order to research and introduce German technology. This was also the time that Japanese trading companies such as Mitsubishi Shoji (Mitsubishi Trading) started to establish, one after another, representative and branch offices in Germany, and they worked to introduce German technology to Japan (see Chapter 3, section I, 2). This respect for German technology was to be a basic theme of business relations and, indeed, of foreign relations overall between Germany and Japan in the inter-war period. 2 Economic conflict Japanese–German trade ties in the inter-war period were not peaceful; there were continuous conflicts that changed in form from day to day. The trade relationship that had been terminated with the outbreak of the First World War was re-established at the end of the war. Diplomatic relations resumed in 1921, and in 1922 the German Representative Office in Kobe was upgraded to Consulate General. The quantity of imports of German industrial products increased steadily, but in 1924 the Ministry of Agriculture and Commerce (later the Ministry of Commerce and Industry) checked this growth by establishing an import license system for dyestuffs. The 1926 Saito–Waibel Agreement regarding the Japanese– German dyestuff trade followed this license system. The essence of this agreement7 was that German firms would voluntarily regulate the export of dyestuff items that Japan had started to produce domestically (see Chapter 2, section I, 2). The Japanese–German Commerce and Navigation Treaty, which was signed in 1927, provided for Japan and Germany to extend most-favored-nation status to each other, and, as a result, trade relations were finally normalized. The agreement was signed several years after the end of the First World War, since, as Wilhelm Solf,8 the German Ambassador to Japan at the time, pointed out, there were no important pending issues after the problem of dyestuffs was settled. In other words, the most important issue in Japanese–German trade relations was conflict in the dyestuff trade, and after the problem was settled by the Saito–Waibel Agreement, the two sides enjoyed a short but peaceful time, although they had not yet concluded a commerce treaty. Germany subsequently decided to decrease the import tax on soybean oil, however, and wanted a reciprocal concession from Japan. But Japan claimed it had already

14

Overview

compromised on dyestuffs, so did nothing to respond to German expectations. As a result of this kind of action, German frustration grew. Afterwards, as the Great Depression of 1929 continued to deepen, Japan and then Germany decided to leave the League of Nations, and started to align themselves more closely in political terms. But these deepening political ties were not reflected in their economic relations. Rather, as the two countries emerged from the Depression faster than did other countries, the Germans were wary about the fact that Japanese products were achieving even-greater penetration of global markets. This was not as serious for German producers as it was for the cotton industry in Britain, but the growing presence of Japanese products – such as incandescent light bulbs, bicycles, dyestuffs, and fertilizers – in Asian markets upset German companies and became a pet complaint of German journalists. German newspapers began to run headlines such as ‘The Threat of Japan,’ ‘Japanese Competition,’ and ‘Violations by Japan of German Patents.’ For example, one article tried to explain low Japanese wages in terms of Japan’s rice-eating culture. Japan was also accused of using the Solingen trademark.9 Actually, these articles were not always Japan-bashing as such: some of them tried to promote an understanding of Japanese competitive abilities. Overall, however, Japan’s competitive abilities were observed with considerable concern. One book came out under the title Japan als Weltindustriemacht (Japan as a World-Class Industrial Nation). Another was entitled Japans Expansionsdrang (Japan’s Impulse to Expand). Books such as these, which demonstrated concern at the economic development of Japan, continued to appear even after the Nazis came to power.10 It was not until November of 1936, when Japan and Germany signed the Anti-Comintern Pact, that German journalists finally stopped writing about their fear of Japan.11 3 Closeness in political ties and cool calculation in economic relations In contrast to the close attention paid to German technology by Japanese companies and the Japanese military, on the German side in the 1920s there was a negative attitude toward Japan due to the latter’s membership of the anti-German alliance in the First World War. But this changed by the late 1930s, partly as a result of the proGerman fever in Japan at that time. Japan and Germany became closer politically as their relations evolved from the Japanese–German Anti-Comintern Pact to the Tripartite Pact between Japan, Germany, and Italy. In spite of the closer political relations, however, economic ties continued to be based on a cool, calculating relationship. This contrast between political closeness, on the one hand, and calculating economic relations, on the other, is a basic theme of Japanese–German inter-war relations. Germany’s defeat in the First World War, bringing the loss of the Shantung leased territory as well as the Bismarck–Mariana island colonies, resulted in a rapid

Japanese–German business relations

15

decline in German interests in Asia. In addition, as the losing country, Germany was absorbed in meeting its reparatory obligations to the Allies. However, interest in the Asian region started to recover gradually, the main focus being China.12 Most German companies were interested primarily in the export of military and other products; but some companies, such as I.G. Farben and Siemens, planned direct investment for local production. In 1930, the Federation of German Industry (Reichsverband der deutschen Industrie) sent a special economic mission to China, and, after that, German companies formed a China Research Association (China Studiengesellschaft). The German Government was particularly concerned to prevent China from aligning itself with the Soviet Union. Thus, it tried to assist both militarily and economically. The steps taken by Germany included the despatch of military advisory missions to China. Needless to say, this did not sit well with Japanese policy toward China. However, the revival of German interests never reached the level of prewar imperialist penetration. The German share of foreign loans to and direct investment in China did not recover their earlier levels following the shock of defeat in the First World War.13 Nevertheless, Germany’s policy on China became quite a sensitive issue after the Japanese military invasion of China and the establishment of Manchukuo. On the one hand, the German Government, in April 1936, signed the so-called Hapro Agreement with the Chinese Kuomintang Government, providing credit facilities. Hapro (Handelsgesellschaft für industrielle Produkte GmbH) was established in 1934 in Berlin and handled weapon exports to China and the import of military materials from China. In April 1936, Hapro came directly under the management of the German military, and, at the same time, the Hapro Agreement was signed.14 On the other hand, just prior to this, the German Ministry of Foreign Affairs signed the German–Manchurian Trade Treaty with Manchukuo. As a result, the German Government reshaped trade relations almost simultaneously with the Kuomintang Government and Manchukuo. It is particularly noteworthy that, at the time, the German Government did not actually recognize Manchukuo as a nation. The basis of Germany’s deepening economic ties with Manchuria was the exchange of machinery for soybeans. The background to this was as follows. On the one hand, the Nazi Government wanted to extend its economic sphere, or Großraumwirtschaft. In spite of its claimed attempt to create an autarkic area, Germany, like the rest of central Europe, remained undeniably dependent on outside sources in some vital areas, especially oil and fat imports.15 Although there was a shortage of oil for energy, this situation could be relieved to some extent by the production of synthetic oils. But the lack of vegetable oils and fats for food could be resolved only by imports. In particular, the technology was developed for producing hydrogenated oil in the form of margarine and other products; but this

16

Overview

required the import of raw materials, particularly soybeans, for which demand increased. On the other hand, soybeans were very important for the Manchurian economy, which was called a ‘soybean economy.’ The income of South Manchurian Railway was based mainly on the transportation of soybeans. The export of soybeans to Germany started before the First World War, and more than 80–90 percent of soybean and soybean oil exports went to Europe in the 1930s. About two-thirds of the total went to Germany. These deals were handled primarily by Mitsui Bussan (Mitsui & Co.) and Mitsubishi Shoji.16 Germany was not only the leading European market for unprocessed soybeans, it was the ultimate controller of the market in terms of price and size. Thus, German stomachs controlled Manchuria’s nerve center, which was said to have ‘become sensitive to the movement of German clocks.’17 Meanwhile, the Nazi Government aimed at increasing self-sufficiency in oils and fats for food, and instituted a license system for soybean imports in 1934. Naturally, this had an adverse effect on soybean exports from Manchuria to Germany. There were high expectations in Manchuria that soybeans would earn foreign currency and so contribute to the building of the Manchurian economy. The Manchurian Government tried to alleviate the situation by concluding a special agreement with Germany.18 In September 1935, a mission led by Otto Carl Kiep, a German Foreign Ministry councilor, visited Japan and met with Foreign Minister Hirota Koki and Finance Minister Takahashi Korekiyo as well as with Japanese business leaders. Among the issues discussed with Takahashi was the German–Manchurian trade problem. Needless to say, Japan asked for the expansion of soybean exports from Manchuria as a reward for increased imports of German machinery by Manchuria.19 The end result of these overtures was the German–Manchurian Trade Treaty of April 1936. This agreement provided for the exchange of German machinery for Manchurian soybeans, and thus attempted to solve the triple problem of Germany’s excessive imports from Manchuria, Manchuria’s excessive imports from Japan, and Japan’s excessive imports from Germany. This treaty was extended a year later, in May 1937. Then, after the outbreak of the Sino–Japanese War in July 1937, the Japanese Government sent a mission to Europe and to the USA to purchase machinery and weapons. Naturally, Germany was included in the countries the mission visited. The German Government, after the start of the Sino–Japanese War, however, began to limit weapon exports to both Japan and China. First, the German Government required payment in foreign currency, setting conditions for permits for overall exports. And, second, the German Government required 100 percent payment in foreign currency for any German export of military products to Japan. In September, the German Government extended the foreign currency payment condition to all

Japanese–German business relations

17

German exports to Japan and China. On top of that, in December the German Economic Ministry decided that if any exports to Japan required the provision of credit beyond a certain term, this request had to be evaluated by the ministry. In addition, the export of military supplies to China and Japan, as well as education and training related to the military industry, required special permission (see Chapter 3, section II, 1 and Chapter 4). Thus, after the start of the Sino–Japanese War, for a period of time Japanese expectations toward Germany differed markedly from the German response. The background to this disparity was that German foreign policy in Asia was biased toward China, and thus Germany continued to send military advisors and export weapons to China. Both Germany and Japan lacked foreign exchange and were forced to strengthen their foreign exchange controls, and the outcome was actually a distancing of economic relations in spite of closer political ties. Thus, when the Sino–Japanese War broke out, the contradictions in the German foreign policy toward China and Japan were highlighted. Shortly thereafter the German Foreign Ministry secretly sent advisors to Manchukuo. At the same time, German trade veered from China to Manchuria. In September 1937, the German steel trading company Otto Wolff signed a credit agreement with the Manchurian central bank. The essence of the agreement was that Otto Wolff would set up a credit facility of 2 million pounds sterling, and Manchukuo would use this to import German products, repaying it by exporting raw materials.20 In May 1938, the German– Manchurian Treaty of Friendship was signed, and the German Government officially recognized Manchukuo. At the same time, the German Government recalled its military advisors who were stationed in China. This was the turning point in Germany’s diplomatic policy toward China. From then on, German policy showed a clear bias toward Japan. In September 1938, the German–Manchurian Trade Treaty was expanded to a general commerce treaty. Thus, German–Manchurian trade relations were established on a solid footing. On the other hand, German–Japanese commerce treaty negotiations made little progress. Finally, in July 1939, agreement was reached on a draft treaty, but immediately afterward war in Europe broke out, delaying the signing of the treaty.21 After the start of hostilities, Japanese corporations, facing difficulties importing machinery from Germany, began to expand their orders from the United States. But in September 1940, after the establishment of the Tripartite Alliance between Japan, Germany, and Italy, when the United States gradually started to strengthen its export embargoes against Japan, Japanese companies again started to increase their orders from Germany. For example, for a period, Mitsui Bussan and Mitsubishi Shoji strengthened their ties with US companies that were competitors of Krupp in the area of forged products and reaction pipes for hydrogenation. But, ultimately, they returned to Krupp.22 Transport became a serious problem, but was partly resolved

18

Overview

by the German–Soviet non-aggression pact of August 1939, which ensured the transportation of goods via the Siberian railway. The Japanese Government looked toward some kind of economic and technological cooperation within the framework of the Japan–German–Italian Tripartite Pact of September 1940. In particular, the Japanese focused on the introduction of synthetic oil technology from Germany. These expectations were not fulfilled, however. Despite the political closeness between the two countries, economic cooperation did not advance (see Chapter 4). Rather, Japan’s southward advance made Germany cautious, and negotiations for a commerce treaty stalled.23 The outbreak of war between the Soviet Union and Germany in June 1941 made transportation through Siberia impossible, and German exports to Japan decreased dramatically. Then, with the beginning of the Pacific War in December 1941, Japanese– German economic relations weakened markedly. The conclusion of a commerce treaty lost almost all of its meaning, and the Treaty for Economic Cooperation that was concluded instead in January 1943 was only a simple one consisting of five clauses on cooperation in trade, technology, finance, and economic policies, and was very general in its terms.24 There was no expectation that the agreement would be effective. Thus, economic ties between Japan and Germany became even more feeble. In summary, there was almost no economic cooperation between the Nazi Großraumwirtschaft and the Greater East Asian Coprosperity Sphere. There were a few soybean and machinery deals still between Germany and Manchuria. But Japan had no export products that were valuable to Germany, certainly as compared to the soybeans from Manchuria. There was almost no prospect for vertical or horizontal division of production between the two economic blocs. Thus, in the inter-war period, the Japanese–German relationship was close only in a political sense. The reality of economic ties was that they were based on a cold calculation by both Japanese and German corporations, especially by the latter. II STRATEGY CHOICES OF GERMAN COMPANIES 1 Japan as one of the first newly industrializing economies The most striking characteristic of the Japanese market was its rapid growth. The economic growth rate of Japan between the wars exceeded an annual average of 4 percent, placing it in the global top rank.25 Also, the speed of industrialization was as rapid as that of Eastern European countries. Taking the opportunity of the First World War, Japan started to enter a phase of heavy and chemical industrialization, which did not falter even during the Great Depression. In that sense, Japan can be called one of the first ‘newly industrializing economies’ (NIEs). A second characteristic of Japan was its strong economic nationalism, from the point of view of import duties, trade policy, and foreign capital policy.

Japanese–German business relations

19

However, the degree of this nationalism differs between the 1920s and the 1930s. In the 1920s, Japan increased tariffs and limited the quantity of imports to protect domestic industry. Still, relatively speaking, the policy overall was based on free trade. During this decade, Japan’s policy toward the introduction of foreign capital was relatively liberal. Japan’s foreign investment policy had been liberalized after the Sino–Japanese War of 1894–5, with the establishment of the gold standard, the introduction of a commercial code, and the abolition of extra-territoriality. In addition, laws allowing foreigners to own land indicated a relatively liberal policy toward foreign capital. Because of these changes, European and American corporations started to invest directly in Japan around the turn of the century, and this became a stronger trend after the First World War. Although there were many limitations on control of Japanese companies by European and American companies, clearly a relative liberalization of foreign capital developed during the 1920s. On the other hand, in the 1930s, it became quite clear that the basic policy on tariffs and trade was protectionism and the avoidance of foreign direct investment in Japan. Import tariffs on industrial products were increased. In addition, the Ministry of Commerce and Industry and other organizations started a movement to encourage the use of domestic products and launched the ‘Domestic Production’ movement. Furthermore, the military, especially the army, started to intervene in politics, and foreign capital policy veered from relative freedom to avoidance and elimination.26 With the development of this kind of economic nationalism, Japanese companies began strongly to exert their independence, both managerially and technologically, of Western corporations. They took control of the domestic market, and tried also to move into the Asian market, becoming challengers to the international cartels that embodied the old order. The third characteristic of Japan is that in the 1920s it was a relatively open market for Western companies. In other words, Japanese markets rarely became a target for competitive restraints by international cartels. In most cases, the Japanese market remained a free competitive zone until the end of the 1920s. This was related to the strategies of Western (including German) corporations toward Japan. At that time, Western companies in general preferred an export strategy over licensing or direct investment in Japan. This was linked to the very rapid expansion of the Japanese market, and it was thought to be more beneficial to respond by exporting. Also, during this period, Japanese tariff and trade policies were relatively liberal. But, more than anything, their physical and psychological distance from Japan made Western companies hesitant to commit themselves to licensing and, especially, to direct investment. Around the beginning of the 1930s, the productive capacities of Japanese corporations grew to the extent that they no longer needed to import in several areas

20

Overview

of industrial products. Also, protectionist tariffs and trade restrictions began to increase. Moreover, Western companies also started to cooperate within the framework of international cartels, and they turned their policies to include Japan in this strategy. Examples of international cartels in which German companies played an important role are those related to heavy electrical machinery, telephone equipment, dyestuffs, and chemical nitrogenous fertilizers.27 2 Licensing versus direct investment As we saw in the previous section, in the 1920s Japan became an important market for German corporations as Japanese demand for German technology grew. With Japan’s progress toward industrialization, especially of its heavy and chemical industries, exports of machinery and chemical raw and intermediate materials from Germany expanded. Generally speaking, as the export of products steadily increased, licensing and direct investment were not seriously considered by German companies. Western companies consistently preferred exports over licensing or direct investment, and German companies were no exception. Furthermore, German corporations had special reasons to prefer an export strategy; as losers in the First World War, they suffered the loss of their foreign assets, and that experience inclined German corporations toward caution and risk-avoiding behavior.28 In that sense, Siemens’ establishment of a joint venture with Furukawa Denki Kogyo (Furukawa Electric Industry) was an exceptional case. This decision was related to the characteristics of the electrical machine industry. The industry enjoyed strong patent protection, making direct investment and local manufacturing less risky. Also, GE, Westinghouse, Western Electric, and others were investing directly, so Siemens had no choice but to follow. Finally, although international cartels had been formed with the cooperation of the American corporations, they were not as strong as those in the chemical industry. In the chemical industry, on the contrary, the protection of technology based on patents was less vigorous; thus, direct investment in overseas production was almost negligible. Instead, exports and licensing were the primary strategies. These were backed up by strong international cartels.29 As Japanese domestic production increased and protectionism became more obvious, however, German chemical corporations similarly were forced to consider licensing and direct investment. Given this choice, the argument in favor of direct investment was that in Japan demand for iron and steel products, machinery, and chemical products was expected to increase. Also, there was a possibility that Japan could be an important production base for neighboring Asian markets, such as China. On the other hand, the argument for licensing was the German companies’ bitter experience of their loss of foreign assets due to Germany’s defeat in the war. When forced to retreat from their export

Japanese–German business relations

21

strategies, German companies chose licensing rather than direct investment. On top of that, German companies showed a high level of risk-aversion even in neighboring European and American markets. So it was natural, considering the political and economic risks in Japan, that they would be even more cautious. On the other hand, the Japanese wanted to develop from a situation of imports to direct transfer of technologies – or, indeed, to skip the import phase entirely. Also, the Japanese policy of avoiding dependence on foreign capital was an important factor. Thus, in the 1930s, the strategies of German corporations vis-à-vis Japan evolved toward licensing, with the inclusion, where possible, of Japan in international cartels. III FORMS OF BUSINESS RELATIONSHIPS 1 Trade An overview of trade between Japan and Germany is given in Table 1.1. This is based on German statistics, which differ somewhat from the Japanese statistics, but the differences are not substantial. The overall trend is an increase in total trade in the 1920s and a slowdown in the 1930s. As for the trade balance, Germany’s exports to Japan exceeded those of Japan to Germany by a wide margin, and the gap actually increased after the First World War. Table 1.1 German trade with Japan, 1913–38: annual totals in 1 million-mark (reichsmark) units Traded goods

1913

1926

1928

1932

1936

1938

Exports Wool and wool products Paper products Iron and steel products General machinery Transportation machinery Precision machinery Electrical machinery Dyestuffs Fertilizers Potash products Pharmaceuticals Imports Raw silk Silk products/Rayon products Animal and fish oil

122.0 12.2 1.3 16.7 2.2 7.7 — 9.1 14.1 — — — 46.6 9.4 6.5 2.2

240.3 20.2 4.9 59.6 13.9 2.1 4.0 14.7 16.5 51.1 4.1 — 18.5 2.4 1.3 2.9

212.9 21.6 4.1 32.8 — — — 12.3 9.7 37.4 7.0 — 39.8 9.8 3.1 5.3

80.8 1.0 2.3 9.5 8.8 — 1.4 3.2 10.6 4.2 1.7 — 18.8 1.3 1.4 0.8

74.9 — — 11.0 13.0 1.0 4.4 3.2 6.4 6.0 4.9 3.2 23.7 2.2 1.1 3.5

93.0 — — 10.7 32.1 10.6 2.2 4.9 1.0 3.5 6.1 — 25.0 2.9 1.4 4.0

Sources: Statistisches Reichsamt 1915: 274–5 and 1929: 303–4; Länderrat des Amerikanischen Besatzungsgebietes (ed.) 1949: 412–13, 446. Note: The figures include only traded goods and exclude re-exports.

22

Overview

Compared to 1913, just before the war, there is a slight, but not drastic, change in the composition of the traded products. Japanese exports to Germany before the war were primarily vegetable wax, peppermint oil, luffa (vegetable sponge), gelatin, seeds, ceramics, silk and woven items, and copper products. After the war, down, shell buttons, paper products, ceramics, textile goods, silk and woven products, and canned fish were the major products.30 In German exports to Japan, there were increases in iron and steel products, general machinery, electrical machinery, and fertilizers. German products exported to Japan changed further between the 1920s and the 1930s. Wool and wool products disappeared, and iron and steel products, electrical machinery, dyestuffs, and fertilizers also markedly decreased, while general machinery increased dramatically, and pharmaceuticals appeared on the list in the 1930s. The key factor in Japanese–German trade was German exports to Japan. These were related very closely to the development of the Japanese heavy and chemical industries, and thus there was a strong bias toward imports of machinery from Germany. On the other hand, the trend of Japanese exports to Germany continued almost unchanged from pre-war days. Japanese export items were composed largely of luxury articles which were generally marginal to the German economy. In terms of amount, too, they were insignificant for Germany. They were, however, important for the Japanese economy. German goods accounted for 6.1 percent of Japanese imports in 1928, increasing to 6.4 percent in 1938. In the same period, Germany’s share of Japanese exports increased from 0.6 percent to 1.2 percent, although the absolute value was small. On the other hand, Japan’s share of overall German exports showed little change, declining from 1.8 percent in 1928 to 1.7 percent in 1938. As for its share of German imports, the figure stood at 0.3 percent in 1928 and 0.5 percent in 1938.31 The following products and manufacturers played a major role in German exports to Japan. Iron and steel products: most of the large companies, such as Vereinigte Stahlwerke, Krupp, Stumm, Thyssen, GHH, Klöckner, Phoenix, Röchling, Hoesch, and Mannesmann, were associated with exports to Japan. General machinery: if one were to take just those companies and products that Mitsubishi Shoji dealt with, this would be a huge list. • Steel-making machinery: rolling mills of Krupp and of Demag; water pressure machines of Schlämann; forging machines of Hydraulik; machine tools of Frorieb; and Krupp’s Renn-process equipment. • Chemical machinery: coke oven of Koppers; Otto’s coke oven; Lurgi’s low-temperature carbonization equipment; Linde’s nitrogen equipment and gas-separation equipment; Lurgi’s sulphuric acid equipment and Cottrell-type dust-collecting equipment; I.G. Farben’s ammoniumsulphate-producing equipment and methanol-making equipment; the

Japanese–German business relations

23

Hoko-type thick nitric acid-producing equipment of Bamag-Meguin; and Krupp’s oil press mill.32 Other than that, Mitsubishi Shoji also imported from Germany machine tools, textile machinery, foundry equipment, cargo-handling equipment, civil engineering equipment, mining equipment, marine equipment, and general industrial machinery. Apart from Mitsubishi Shoji, in precision machinery, Carl Zeiss, and in electrical machinery, Siemens, AEG, and Bosch were all exporting to Japan. Dyestuffs and nitrogen fertilizers were exported to Japan almost exclusively by I.G. Farben. Potassium products were totally controlled by Kalichemie, the potassium syndicate. Regarding pharmaceuticals, other than I.G. Farben, Schering, E. Merck, and other specialized companies exported to Japan. In order to get an idea of some of the products that gained prominence at the time, let us look at the handbook Doitsu Taikan 1937–38 (Outlook for Germany for 1937–38), issued by Nihon Denpo Ts363;shinsha (Dentsu). The following German products and technology are listed: • • • • • • • • • • • • • • • •

UFA talking film; movable broadcasting cart; air current observation machine; telephotographic lens; Voigt’s water turbine; synthetic rubber (Buna); tanks; Mercedes-Benz automobiles; aircraft; Autobahn-construction concrete-coating machine; Bosch’s products (precision machinery, magneto, Bosch Horn, and direct current dynamo); Askania’s products (automatic boiler adjustment machine, projector and camera for aviation position finding); Demag’s cogging mill; Wanderer’s milling machine; Hahn-Kolb’s screw cutter; and Bayer’s pharmaceuticals.

This list gives some idea of the areas Japan was interested in: machinery, chemicals, and other high-technology products of the time.33 2 Licensing The term licensing is used here not in its narrow sense of legal procedure but in its broad sense of a new format of business development other than exports or direct

24

Overview

investment. If we were to take the narrow meaning of licensing, in terms of legal agreements relating to patents, then there were probably only two cases in Japan before the First World War.34 But, in terms of the broader definition, there were probably already several cases before the First World War, and the trend became more pronounced after the war. First, let us look at the statistics on patents, trademarks, and copyrights after the First World War. Japan was already a member of the International Industrial Property Rights Protection League, which guaranteed protection for industrial property rights, and was a signatory of the Treaty of Bern, which protected copyrights. Japan signed agreements also with countries that were neither members of the league nor signatories to the treaty, such as Russia in relation to industrial property rights and the United States in relation to copyrights. As for intangible property in general, the overall number of patents, utility models, designs, and trademarks registered in Japan was 29,000 from 42 countries, as well as 360 registered copyrights at the end of the Second World War. As of the end of December 1941, the overall number of industrial property rights registered in Japan was 47,000 patents, 90,000 utility models, 14,000 designs, and 253,000 trademarks35. However, the ratio of those owned by foreigners was very small. Details are shown in Table 1.2. Of the foreign owners, Germany had a majority of the patents and utility model rights, far in excess of the United States or Britain. In terms of copyrights, too, Germany was number one in design rights, and number two in trademarks after the United States, taking a onethird share together with the United States and Britain. Concerning transfer of technology related to industrial property rights, there seem to be no general statistics nor partial figures that are reliable to some extent.36 Thus, we can use only the figures available as a general illustration and try to infer from them the overall picture. Table 1.2 Foreign ownership of industrial rights in Japan (as of December 7, 1941)

USA Britain Canada The Netherlands Germany* Total

Patent rights

Utility model rights

Design rights

Trademark rights

1988 483 28 117 4500 8843

559 74 2 6 1200 1624

21 26 0 4 30 88

4826 3525 57 517 4300 15887

Sources: (For Japan) Tokkyocho (ed.) 1984(1): 578–9**; (For Germany) Gaimusho, Tokubetsu Shiryobu (ed.) 1948: 150. Note: *The German figures are just rough numbers, not necessarily accurate, and thus the totals do not add up. **Although reliable, this document covers only United Nations members.

Japanese–German business relations

25

In the area of technology transfer from Japan to Germany, there is only one known example: the Shimadzu production process for lead powder (see Chapter 8). Even this resulted in failure. Overall, the transfer of technology was one-way – from Germany to Japan. Looking at the targets, by industry, for technology transfer, first in importance was the machine industry, where we may assume that exports and licensing were complementary or substitutable. A partial list of examples follows. • Iron and steel-making machinery: Lurgi’s Dwight-Lloyd sintering machine; Krupp’s Renn method of direct steel making; and the Riedhammer-type calcinating furnace of Vereinigte Aluminum Industrie.37 • Nonferrous metals: Metallgesellschaft supplied the technology for connection of wire, cable, and other electric conduits to Furukawa Electric Industry. Metallgesellschaft’s subsidiary, Vereinigte Leichtmetall Industrie, supplied semimanufactured aluminum production techniques to Manshu Keikinzoku (Manchuria Light Metal) via Mitsubishi Shoji. It supplied also semi-manufactured light metal production techniques to Furukawa Electric Industry.38 • Transportation machinery: in the area of diesel engine technology for submarines, the links between MAN, Kawasaki Zosensho (Kawasaki Shipbuilding), and Mitsubishi Zosen (Mitsubishi Shipbuilding and Engineering) are well known. Other examples are Dührwerk’s steam boiler, the super-speed small diesel engine of Krupp, Pittler, and Krause.39 • Electrical machinery: Siemens supplied many technologies, such as that for electric generators to its joint-venture subsidiary Fuji Denki Seizo (Fuji Electric Manufacturing). Also, Bosch licensed a fuel spray appliance for diesel engines. AEG actively licensed its technologies, for example, supplying generator turbines to Hitachi – one of only two foreign technology acquisitions made by Hitachi Seisakusho (Hitachi Manufacturing Works) before the Second World War.40 There were also many examples of transfer of machine tool technology.41 • Chemical industry: I.G. Farben supplied dyestuff manufacturing techniques, the Haber-Bosch process for synthetic ammonia, and the Winkler process for gas generation.42 Also, Lurgi supplied low-temperature carbonization equipment; Linde did so for gas-separation systems,43 and Ruhrchemie in 1936 supplied a synthetic oil production method, the Fischer-Tropsch process, to Mitsui Kozan (Mitsui Mining) through Mitsui Bussan.44 Degussa supplied its metal heatprocessing method to Tsukishima Kikai (Tsukishima Machine) through its subsidiary.45 Vereinigte Glanzstoff supplied Asahi Kenshoku (Asahi Silk Fabrics, later Asahi Kasei – Asahi Chemical Industries) with rayon-manufacturing technology.46 There is a seemingly endless list of examples in this area. • Aircraft: after the First World War, this industry saw increased use of licensing rather than product exports. In Japan, the military as well as private companies

26

Overview

demonstrated a strong interest in German aircraft manufacturing technologies (see section 1, 1). In the beginning, the military tried to transfer the technology, first by importing the products, and then by gradually diffusing the technology to newly established private companies for domestic production. This approach had its limitations, however, and the military often relied on licensing from Germany. At the time, the German aircraft industry was limited in its development by the terms of the Versailles Treaty. In response, some firms were eager to export products and to license technology in an effort to avoid closing factories and laying off workers. As a result, almost all German aircraft and aircraft engine makers tried to export products or licensed technologies to Japan. Examples of aircraft manufacturers included Bücker, Dornier, Fieseler, Focker-Wulf, Gotha, Grade, Hansa–Brandenburg, Heinkel, Junkers, Messerschmitt, Parseval, and Rohrbach. Engine manufacturers included BMW, Daimler-Benz, Maibach, Junkers, and Walter-Kiel – Focker-Wulf, Heinkel, Junkers, Messerschmitt, and Rohrbach are the former companies of today’s Messerschmitt-Bölkow-Blohm.47 The companies with connections to Mitsubishi Shoji were Rohrbach, Junkers, Heinkel, Zeppelin, Sachsenberg, and Hedderheimer, among others.48 German production was also moved abroad as a way of camouflaging activities. For example, Rohrbach moved its headquarters to Denmark. In 1925, the president himself came to Japan and made presentations to the military and others, trying to sell especially to the navy. Rohrbach established Mitsubishi Rohrbach Hikoki (Mitsubishi Rohrbach Aircraft) jointly with Mitsubishi zaibatsu (Mitsubishi owning 60 percent and Rohrbach 40 percent) in 1925. Licensing was effected through this joint-venture corporation. Dornier’s president also came to Japan and made sales presentations. Although his export plans were not realized, in 1924 the company signed a license agreement with Kawasaki Shipbuilding through the intermediation of C. Illies& Co. Based on this licensing agreement, Kawasaki Kokuki (Kawasaki Aircraft) produced the DoN-type fighter plane, and a succession of other types of aircraft.49 3 Direct investment (1) German investment in Japan According to a survey on foreign direct investment conducted by the Ministry of Commerce and Industry in 1931, eighty-eight foreign-affiliated manufacturing companies were operating in Japan, excluding trading and insurance firms. Of these, 36 were American, 21 British, 17 German, 3 Swiss, 2 Chinese, and 1 each

27

Japanese–German business relations

for France, Luxembourg, and Czechoslovakia, with 6 of unknown origin. Germany was thus ranked third, after the US and Britain.50 Table 1.3 shows the ownership and management form of foreign-affiliated companies. Among the seventeen German companies, there were 5 representative offices that carried out only sales activities, and 12 corporations formed on the basis of Japanese law. Of the 12, 2 were exclusively foreign-owned and managed, and 2 were substantially foreign-owned and managed, while 8 were jointly owned by foreign and Japanese interests, but Japanese managed. That kind of distribution pattern was in strong contrast to the pattern for the US companies, but similar to that for the British companies: more than 40 percent of German and British companies were jointly owned with and managed by Japanese, while 40 percent of US companies were simply representative offices. Among the 17 German companies, 7 were in machines and equipment, 3 in electrical machinery, 2 in rayon, 2 in cotton and knitted goods, and one each in beverages, light-sensitive paper, and wool.51 According to a study by Nippon Kogyo Ginko (the Industrial Bank of Japan) entitled Gaikoku Kaisha no Honpo Toshi (Investment in Japan by Foreign Companies), there were only three German companies: Fuji Electric, Asahi Bemberg Kenshoku (Asahi Bemberg Silk Fabrics), and Goto Fuundo (Goto & Co.).52 Thirtynine foreign-affiliated manufacturing companies are listed by Udagawa Masaru, whose research represents the most up-to-date and comprehensive data about foreign companies in pre-war Japan. Although foreign manufacturing companies are listed as manufacturers, that does not mean that they carried out local production in Japan. Udagawa’s list contains companies of which more than 10 percent of the capital was owned by foreigners at the establishment of the joint venture. These include five German companies, namely, Siemens-Schuckert Denki (SiemensSchuckert Electric), Goto Fuundo, Table 1.3 Ownership and management forms of foreign-affiliated companies, 1931 (percentages are given in parentheses) USA Foreign companya

Britain

Germany

Others

Total

15

(42)

5

(24)

5

(29)

4

(29)

29

(33)

100% foreign ownership/management

6

(17)

5

(24)

2

(12)

0

(0)

13

(15)

Joint ownership/foreign managementb

6

(17)

2

(10)

2

(12)

0

(0)

10

(11)

Joint ownership/Japanese managementc

9

(25)

9

(43)

8

(47)

10

(71)

36

(41)

Company formed under Japanese law

Totals

36 (100)

21 (100)

17 (100)

14 (100)

88 (100)

Source: Gaimusho, Tokubetsu Shiryobu (ed.) 1948: 72–5. Notes: Excluded are companies related to commerce and insurance; totals differ due to rounding. a Headquarters located in foreign country and opened branches in Japan, mostly just for sales. b

Majority foreign ownership and management.

c

Joint foreign and Japanese ownership, and Japanese management.

28

Overview

Asahi Silk Fabrics, Fuji Electric, and Nihon Bemberg Kenshoku (Japan Bemberg Silk Fabrics). The most active foreign corporations were in the four industrial areas of oil, heavy electrical machinery, tires, and automobiles. The only German company active in these areas was Fuji Electric.53 The following is an overview of German corporations that were operating in Japan, listing, in order, parent company, year of establishment, equity stake, form of corporation, and area of activity. • Siemens-Schuckert Denki: Siemens-Schuckertwerke; 1905; 100 percent; sales. • Goto Fuundo: Siemens & Halske; 1919; 10 percent; limited partnership, later joint-stock company; medical equipment sales. • Asahi Silk Fabrics: Glanzstoff, Bemberg, I.G. Farben, Noguchi Shitagau, and others; 1922; 20 percent; artificial silk manufacturing. • Nihon Bemberg Silk Fabrics: J.P. Bemberg, Nippon Chisso Hiryo (Japan Nitrogenous Fertilizer); 1929; 20 percent; artificial silk manufacturing. Asahi Silk Fabrics and Nihon Bemberg Silk Fabrics were merged in 1933 to establish Asahi Bemberg Silk Fabrics. • Fuji Electric: Siemens & Halske and Furukawa Electric Industry; 1923; about 30 percent; manufacturing and sales of electrical machinery. Other than these examples, manufacturing companies included Nippon Musen Denshin Denwa (Japan Wireless Telegraph and Telephone; parent firms: Telefunken and Okura Shoji (Okura Trading)) and Titan Kogyo (Titan Industry: I.G. Farben). In the 1920s, although Japan welcomed foreign capital, German companies preferred an export strategy, and their strategy vis-à-vis Japan was generally cautious, as we saw earlier. The number of cases and the amount of direct investment were small, being mostly for the purpose of the setting up of sales and distribution networks. For distribution, the majority used the agency system. Direct investment for production was very rare. The most important exception was Fuji Electric, jointly established by Siemens and Furukawa Electric Industry in 1923, with about 30 percent of the capital provided by Siemens. This is a very rare example of direct investment in local production by a German firm, and the most important example of German direct investment prior to 1945 (see Chapter 9). In the 1930s, German direct investment in Japan declined. This trend applied to foreign companies overall. Some estimates indicate that after the outbreak of the Sino–Japanese War the number of German corporations in Japan increased up until the outbreak of the Pacific War, and that such investment soon exceeded the level of American capital in Japan.54 These estimates are not well substantiated, however, and are very hard to believe. Udagawa has characterized foreign direct investment in Japan before the Pacific War as follows. The corporations investing in Japan were mainly large corporations with global operations, and their Japanese partners in the cases of joint ventures

Japanese–German business relations

29

were generally zaibatsu companies. Moreover, each case of investment was relatively small in scale, and investment took place mainly in the 1920s. These features apply also, to a large extent, to German investment in Japan.55 The primary motive for direct investment, in most cases, was the transfer of technology, but the desire to invest in kind was also common, and a further reason was the desire to be close to the market.56 All of these motives are applicable also to German corporations. Udagawa provides one reason for the small scale of operations: It is a fact that they [multinational corporations] did not invest large amounts in Japan. We can attribute this to the fact that, within their global strategy, the Japanese market was still a small factor.57 However, this point is rather suspect. Would we draw the same conclusion looking at the export and licensing activities of these corporations? Rather, I argue throughout this book, German companies, together with other European and US firms, treated the Japanese, and indeed the Asian market, as having great potential for development. In my opinion, the reason that the scale of direct investment was very small was that German companies chose to focus on exports as much as possible, and even when exports declined due to Japanese regulations and other factors, German companies chose licensing rather than direct investment (see section II, 2). If we look at the overall scope of German involvement in Japan, not limiting it to direct investment, numerous German companies were active. Companies such as Vereinigte Stahlwerke, Krupp, Mannesmann, Rheinmetall, I.G. Farben, Kalichemie, Schering, E. Merck, AEG, Carl Zeiss, and others began active sales through agencies and other methods. Furthermore, some companies opened branch offices and set up local firms. I.G. Farben, for example, established a local company under its direct control for dyestuff sales. Moreover, many Hamburg and Bremen trading companies, represented by C. Illies, established sales footholds in Japan (see Chapter 3, section I, 1). As for banks, Deutsche Asiatische Bank, a subsidiary of Deutsche Bank, set up branches in Yokohama and Kobe in 1905 and 1906.58 According to the records of the German Consul in Japan, there were 53 German corporations active in 1926 in Japan proper, excluding the German Chamber of Commerce in Japan, as well as 7 in the Kwantung district and Korea. In 1928, there were 60 companies in Japan proper.59 Furthermore, if we take a wider definition of German companies’ activities, more than 100 companies were active including local corporations, local representatives, and branch offices. The handbook Doitsu Taikan (Outlook for Germany), mentioned earlier, puts the number as high as 117.60 In 1907, before the First World War, there was a total of 42 German companies in Japan – 25 in Kobe and 17 in Yokohama.61 Thus, the number had almost tripled by the mid-1930s. There were 45 companies that advertised in the Doitsu Taikan, either German companies or their agents as well as Japanese firms with close relations to German

30

Overview

companies, and we can assume that this number included some that had made major commitments or were aggressively pursuing business in Japan. A breakdown according to industry shows that 35 companies were in trading and commerce, and 4 in manufacturing (one of these was headquartered in Germany, and 2 were Japanese companies; the only German manufacturer properly established in Japan was a confectionary). Other than these, there were two companies in law and patents, and one company each in trade exhibitions, tourism, movies, and engineering – although this last company was more or less a sales outlet.62 (2) Japanese investment in Germany Japanese direct investment in the manufacturing sector in China started very early, with the textile industry. In the 1930s, there was investment in Manchuria by the heavy and chemical industries. At the time of the Pacific War, additional investment was undertaken in the areas to the south, occupied by the military. On the other hand, Japanese direct investment in the service sector in East Asia and later in the United States and Europe was carried out through trading companies and banks.63 In Germany, there was no direct investment by Japan in the area of manufacturing. This was only natural since at that time, unlike today, there were few manufactured products that could be exported from Japan to Germany, and there were few technologies that could be transferred to Germany. Examples of manufacturers setting up sales operations in Germany were also very rare. Most Japanese companies in Germany were trading companies, such as Mitsubishi Shoji, Mitsui Bussan, and Okura Shoji, and the majority were established for the purpose of importing industrial products and introducing German technology into Japan (see Chapter 3, section I, 2). Other than these companies, in marine transportation, Nippon Yusen Kaisha (NYK) and Osaka Shosen Kaisha (OSK) had offices in Hamburg; and, in the financial industry, Yokohama Shokin Ginko (Yokohama Specie Bank) opened branch offices in Berlin and Hamburg. One other special case was Ost Lurgi, which was set up in Berlin for the purpose of transferring technology from Japan to Germany (see Chapter 8). 4 Movement and stationing of personnel (1) Germans in Japan A number of German companies sent personnel to Japan to pursue exports, licensing, and direct investment, some staying in Japan for long periods. We do not know the actual number, but one statistic indicates that, in 1907, the number of Germans (not limited to company personnel) living in Japan for long periods was 220 in western Japan and 357 in eastern Japan, for a total of 577 people.64 Around 1900, in Yokohama,

Japanese–German business relations

31

there was a German bank, a pharmacy, a weekly magazine, a bookstore, and a food shop. A German school was established in 1904 and, by 1911, a hospital run by the German navy was also established. In Kobe, a school for Germans was set up in 1909; and of those Germans who were captured in Chingtao and sent to the camps in Tokushima and Fukuoka Prefectures, during the First World War, quite a few became permanent residents in Japan after the war and used their technical skills to establish companies. The most famous example is the confectioner Juchheim. After the Great Kanto Earthquake in 1923, many Germans moved from Yokohama to Tokyo in an attempt to re-establish the German community. From that time, most trading companies that were importing to Japan moved their offices to Tokyo, while the exporting houses stayed in Yokohama. Also, in western Japan, most import companies were located in Osaka, while exporters were in Kobe.65 During the Meiji period, many foreigners came to work for the government or in government-run factories in Japan. Similarly, in the period covered by this book, many more engineers and sales people were sent by private companies to work in Japan. According to the list of Germans in Japan in the Doitsu Taikan, there were 608 Germans in 1936,66 or triple the level before the First World War. Around 1940, most Germans in Japan were working in trade. The majority were merchants, engineers, and chemists. Those outside these professions were either teachers or embassy staff. ‘In Tokyo–Yokohama and Osaka–Kobe, therefore, the German community can best be described as a merchant colony,’ notes Kurt Meißner.67 (2) Japanese in Germany On the other hand, the Japanese in Germany were diplomats, military officers, students, and trading company employees. Immediately after the outbreak of the Pacific War, ‘those Japanese who lived in Berlin amounted to about 300. Almost 200 women and children moved to the NYK ship Yasukunimaru, which came to Hamburg just after the outbreak of war, to return to Japan.’68 All in all, about 500 Japanese lived in Berlin. Thus, the number was comparable to that of Germans living in Japan. In 1938, there were 292 Japanese people in Europe, the Middle East, and Africa, working for companies with head offices in Japan. The overall number of Japanese employed in Europe and Africa was 1,241. Taking every Japanese person into account, regardless of job status, and including immigrants and their descendants, the total was 2,759.69 By a rough calculation, this means that between one-quarter and one-fifth of the Japanese living in Europe were concentrated in Berlin. In the 1930s, students sent by the Japanese Ministry of Education were also concentrated in Germany.70 It is also well known that the army was strongly in favor of Germany. Of about 500 transferees since 1885 under the foreign posting system for Japanese army officers, 144 were sent to Germany, which ranked first, versus 44 to the USA,

32

Overview

which ranked sixth. In the navy, a total of about 205 were sent through a comparable system operating since 1889, of whom 34 were sent to Germany, which ranked fourth, after Britain, the United States, and France.71 IV CONCLUSION The characteristics of Japanese–German relations between the wars were: 1. 2. 3.

a desire by the Japanese for German technology; economic competition due to Japanese economic expansion; and a coolly calculating attitude on the part of companies, especially German companies, which was in sharp contrast to the increasing political closeness of the two countries.

In sum, this period was defined by economic realities. For German companies, Japan was characterized by a high-growth economy accompanied by heavy and chemical industrialization, economic nationalism (a nationalism that was relatively weak in the 1920s and strong in the 1930s), and a relatively free competitive zone for Western companies. German corporations, whose experience in the First World War had made them risk-averse and cautious, attempted to pursue an export strategy in this market. When they reached the limits of their export strategy, German companies chose licensing rather than direct investment. If we look at the forms taken by business relationships, in trade, the focus was on exports to Japan of German iron, steel, machinery, and chemical products. In terms of content, there was a shift as Japan’s heavy and chemical industries expanded in the 1920s. For example, wool and wool products disappeared from the list of Japanese imports, while iron and steel products, electrical machinery, dyestuffs, and fertilizers all increased. There were also some changes in the 1930s, with increases in general machinery and pharmaceuticals. Many large German corporations were involved in exporting to Japan, and, especially in the case of machinery, the export of products was closely linked to licensing. We may conclude that Germany was equally strongly positioned as were the USA and Britain as sources for technological transfers to Japan. In terms of licensing, a number of firms acted as German representatives in dealings with Japan. Direct investment, like licensing, was more or less a one-way street – from Germany to Japan. In manufacturing, however, the number of cases of direct investment was small, the majority being for the establishment of sales outlets. Finally, there was a substantial movement of personnel between the two countries, for the pursuit of trade, licensing, and direct investment activities.

Part II Export strategy

2 Competition and cooperation I.G. Farben, international dyestuff cartels, and Japan

The inter-war period saw the flourishing of international cartels, including those in the manufacturing sector. These manufacturing-sector cartels were a European phenomenon, that is, they emerged mostly in Western Europe. As far as these cartels were concerned, the rapidly growing numbers of Japanese firms at this time were regarded as mostly ambitious outsiders at first, and later as troublesome participants. In many respects, Japanese firms challenged the international cartels, and it is important to ask how the Japanese challenge affected international cartels, and how the international cartels responded to this challenge.1 This chapter aims to answer these questions, taking as an example the international dyestuff cartels, which were the most powerful international cartels during the interwar period and of which the German chemical giant I.G. Farbenindustrie (I.G. Farben) was a core member. I seek also to clarify both business relations within the international cartels and the relationship of these cartels with Japanese dyestuff manufacturers. I GERMAN DOMINANCE AND THE JAPANESE CHALLENGE IN THE 1920s 1 The import license system In the period before the First World War, the major German chemical companies, which dominated the world dyestuff market, were already exporting their products to Japan on a significant scale. Dyestuffs were an important export item. By 1913, immediately before the First World War, the Japanese market had become an important one for German dyestuff producers. In that year, Japan ranked as the eighth-largest export market for German dyestuff producers, importing 4.9 percent of total German dyestuff exports.2 With the outbreak of the First World War, however, the world market for dyestuffs underwent a shift from being a German monopoly to being subject to competitive

36

Export strategy

forces. European nations and the United States adopted policies aimed at protecting and fostering their dyestuff industries, and they strengthened those policies after the war. The result of the increased competition was that German and Swiss producers lost their market shares, while manufacturers in the USA, Britain, and France gained better positions. Moreover, companies from Italy, the Soviet Union, Czechoslovakia, and Poland emerged in the world market. The First World War also brought about profound changes to the Japanese market as well as to the Japanese dyestuff industry. With the outbreak of the war, Japanese imports of dyestuffs from Europe, especially from Germany, became impossible, and a vacuum was created within the Japanese dyestuff market formerly dominated by German products. This led to a sudden large increase in the number of small indigenous dyestuff producers. A single exception was the establishment of Nihon Senryo Seizo (Japan Dyestuff Manufacturing), which was set up as a stateowned company with share capital of 8 million yen (about 4 million US dollars) under a government policy of fostering the domestic dyestuff industry. Moreover, one of the largest mining companies in Japan, Mitsui Kozan (Mitsui Mining), which was one of the main manufacturing companies of the Mitsui zaibatsu with share capital of 52.50 million yen (about 26 million US dollars) and had diversified experimentally into the dyestuff business shortly before the war, began actual operations on a commercial scale at this time.3 Immediately following the end of the war, imports into Japan were begun once more. Not only German but also Swiss and American products began to flow into the market. It was the German products, however, that managed to regain their dominant position because of their superior quality. The German dominance led the Japanese Ministry of Agriculture and Commerce (which in March 1925 was divided into two ministries – the Ministry of Agriculture and the Ministry of Commerce and Industry) to set up an import license system in June 1924. The system gave the ministry the power to ban the importing of those goods that could be produced domestically. It targeted German products and functioned as a selective barrier against German imports. The effectiveness of the import license system proved to be remarkable. The amount of imports from Germany was curbed as planned for the time being, although imports from Switzerland and the USA took their place.4 This proved a blow for the German dyestuff companies, which had, by the end of 1925, joined forces to create I.G. Farben, the giant German chemical firm. 2 The agreement between I.G. Farben and Japanese dyestuff firms Realizing that it could not penetrate the Japanese market in such an environment, I.G. Farben entered negotiations with the Japanese Ministry of Commerce and Industry and the Ministry of Foreign Affairs, which represented Japanese dyestuff manufacturers, especially the smaller ones.

Competition and cooperation

37

Two years of tough negotiations produced the signing, in August 1926, of an agreement between I.G. Farben and Japanese dyestuff makers. This was later called the Saito–Waibel Agreement after the representatives who signed it (Saito Ryoei was an official of the Ministry of Foreign Affairs; Hermann Waibel, a manager of I.G. Farben who was responsible for Japan and East Asia). The main points contained in this agreement were: • abolition by the Japanese Government of its current import license system for German products; • in exchange, imposition by I.G. Farben of voluntary restrictions on its exports to Japan of those types of dyestuffs the Japanese were capable of producing domestically; • as a general rule, unrestricted exports to Japan by I.G. Farben of all other products, such as synthetic indigo, that the Japanese were unable to produce.5 The agreement thereby provided for the arrangement of a kind of international division of labor within the industry between the Japanese and German producers. The main reason for I.G. Farben’s signing of this agreement at a comparatively early stage of Japanese industrial development was that the Japanese Government had early on put into effect an import licensing system that targeted German products.6 Subsequently, the agreement became the basis for the reconstruction of Japanese– German economic as well as political relations, that is, for the conclusion of the Japanese–German Commerce and Navigation Treaty in July 1927. II THE JAPAN STRATEGY OF THE INTERNATIONAL DYESTUFF CARTELS 1 The Japan strategy of the three-party cartel With the implementation in April 1928 of the Saito–Waibel Agreement between I.G. Farben and the Japanese dyestuff industry, the import license system became invalid. From that time on, I.G. Farben concentrated its efforts on those products, such as synthetic indigo, that had not yet been commercially developed in Japan, while at the same time it did its best to hinder the efforts of Japanese firms to develop new products. One of the most powerful weapons it had to frustrate the Japanese was a lowprice policy, which was criticized by Japanese firms as no more than a form of dumping. Another powerful weapon was I.G. Farben’s refusal to provide technical assistance to Japanese firms, despite the repeated requests to it and other European companies from the Japanese dyestuff industry and the Government for technical cooperation and help. Although I.G. Farben did not openly reject these requests, it was tacitly following a policy of not responding to them in order to maintain its competitive edge.7 Then, in April 1929, German, Swiss, and French dyestuff producers concluded an international cartel, called the ‘three-party cartel.’ German producers had come

38

Export strategy

together through the establishment of I.G. Farben as early as 1925, while three leading Swiss companies – Gesellschaft für chemische Industrie in Basel, J.R. Geigy AG, and Chemische Fabrik vorm. Sandoz, had formed a community of interests (I.G., or Interessengemeinschaft) dating back to the First World War. French companies had also been concentrated into a dyestuff grouping, Centrale des Matières Colorantes (CMC). In addition, these companies of the three countries had already concluded bilateral agreements. Then, in April 1929, they signed a new trilateral agreement, while renewing their bilateral agreements. This international cartel held a four-fifths share of total world exports of dyestuff products. The distribution of its total sales was 71.67 percent for Germany, 19.00 percent for Switzerland, and 9.33 percent for France. While other international dyestuff cartels had been formed on the basis of individual products and had experienced a history of formations and collapses, the three-party cartel in 1929 became one of the most powerful international cartels of its time due to its scheme of distributing its total sales and because of its large share of the world market. The three parties used the same letterhead (the logo consisting of the figure ‘3’ inside of a triangle) for their mutual correspondence, symbolizing their close cooperation. Their Japan strategy was no exception to their cooperation.8 Even before the formal establishment of the three-party cartel, a united front of European and American producers had been formed against Japan. In October 1928, six months after the effectuation of the Saito–Waibel Agreement, most Western producers simultaneously raised the export price to Japan of all kinds of dyestuffs by a uniform 5 percent. This concerted action was proposed by I.G. Farben and was followed by Swiss and US companies. In fact, Swiss companies were at first opposed to this action, partly for the technical reason that the different export prices of each company’s products made it difficult to raise prices uniformly. A more important reason for their initial opposition, however, was that the Swiss companies were afraid that Japanese companies, especially Nihon Senryo, in an attempt to dominate the Japanese market, would not follow the Western companies’ price increases. This fear became a reality: Japanese firms did not follow suit. As a result, while the market share of the three-party cartel fell, that of the Japanese firms rose. Moreover, Japanese exports, mainly to the Chinese and other EastAsian markets, exceeded 1,000 tons.9 Other evidence exists of the development of cooperation between European producers in their Japan business. At the beginning of 1929, I.G. Farben had been negotiating – through its agent in Japan, Doitsu Senryo (German Dyestuffs) – with Nihon Senryo for the conclusion of a comprehensive market agreement. Ciba, the leading Swiss company, learned of this and, at first, feared I.G. Farben’s exclusive cooperation with Japanese producers. It called the attention of I.G. Farben and its Swiss partner companies to the need for cooperation in the Japanese market once

Competition and cooperation

39

more. I.G. Farben admitted that negotiations were taking place with Nihon Senryo, but added that any agreement would not be comprehensive.10 Details of the negotiations are unknown. It is, however, certain that while the three-party cartel wanted the conclusion of a comprehensive agreement with the Japanese, on the Japanese side both Nihon Senryo and Mitsui Mining adopted the tactic of concluding individual or special rather than comprehensive agreements with their Western competitors. When Manager Voigt [of I.G. Farben] held occasional discussions with some leading representatives of Nihon Senryo and the Ministry of Commerce and Industry, the Japanese side repeated that they were prepared to negotiate for comprehensive regulations on dyestuff problems with the German side in principle, but that it was still premature to begin these negotiations.11 The reason for their attitude was clear. The Japanese dyestuff industry was still developing. It suffered from lack of production lines in some principal dyes, such as synthetic indigo, as well as from limited areas of export. Therefore, the Japanese side was afraid that it would tie its hands if it concluded a comprehensive agreement. Rather, it preferred to conclude a series of partial agreements and to aim at developing new products, while expanding its production capabilities and widening its export areas from China to Indo-China and British India. The tactics of I.G. Farben as well as those of the three-party cartel were entirely different from those of the Japanese side. The Western firms wanted to contain the Japanese production capabilities. I.G. Farben’s explanation to the Swiss companies mentioned above may, therefore, have concealed its own real aims. What is certain, in any case, is that I.G. Farben endeavored to obtain the consent of the Swiss companies. These moves toward cooperation were promoted through the formation of the three-party cartel. At the same time, I.G. Farben, the leader of the three-party cartel, tried to obtain the agreement of the cartel’s other member companies concerning its Japan strategy. For example, I.G. Farben reached an accord with three Swiss firms, its partners in the three-party cartel, not to provide technical assistance to Japan. While Inabata Jiro, managing director of Nihon Senryo, made a tour of Europe, visiting Kuhlmann and St Denis of France, and Durand & Huguenin AG of Switzerland to look into the possibility of securing technical cooperation or assistance, his efforts were frustrated by I.G. Farben, which informed Inabata through Ciba that no company that was a member of the three-party cartel could give technical assistance to Japan without the consent of the other members.12 2 The Japan strategy of the four-party cartel In February 1932, the British company Imperial Chemical Industries (ICI) joined the three-party cartel that had been composed of German, Swiss, and French companies.

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Thus, a four-party cartel was established. This international cartel dominated almost 90 percent of the world’s total exports, and sales were distributed according to the following ratio: • • • •

65.602 percent for I.G. Farben; 17.391 percent for Swiss I.G.; 8.540 percent for French CMC; and 8.467 percent for British ICI.

The logo on its common letterhead was changed to the figure ‘4’ inside a circle. Around that time, the international dyestuff cartels had included all the main producers in Europe in their network. The three-party cartel and, later, the four-party cartel had concluded individual or special agreements with dyestuff producers in Italy, Poland, Czechoslovakia, The Netherlands, and other nations. Their member companies had participated in and concluded inter-firm agreements with firms in those nations. Thus, only producers in the USA and Japan remained outside their network in the world market, and only the Asian and South-American markets remained as areas of free competition.13 The Asian region thus became a focal point as one of the last remaining noncartelized free markets, with Japanese companies, which were expanding rapidly in this region, considered as outsiders by the international cartels. I.G. Farben, the leader of the four-party cartel, implemented its Japan strategy with the agreement of the other member companies of the cartel, in the same way as it had during the life of the three-party cartel. Its strategy for Japan was different from that for other outsider companies, such as those in the United States. There were several reasons for this.

1. While the US market absorbed one-fourth of the total global output of dyestuffs and was the largest market for German producers, the Japanese market ranked eighth in importance for Germany. 2. While European companies had undertaken direct investment in the US (for example, I.G. Farben in General Aniline & Film and the Swiss companies in Cincinnati Chemical Works), they had made no direct investment in the manufacturing sector in Japan.14 3. The Governments of Japan and the US differed in their attitudes toward international and domestic cartels: the US situation was prohibitive, while that of the Japanese was tolerant or even promotive. The strategy of the international cartels toward L.B. Holliday & Co., an influential outsider in the British market where ICI was dominant, gives us some basis for another comparison. Holliday held a 25 percent share of British exports. Even with the depreciation of the pound sterling after September 1931, the firm did not raise its prices but pegged them in order to increase its market share. This pricing policy greatly resembled that of Japanese dyestuff producers in 1928. Responding to this,

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I.G. Farben and ICI took the ingenious measure of cutting prices, on the one hand, and stopping the supply of intermediate chemicals to Holliday, on the other. This approach was similar also to that of I.G. Farben toward Japan. In contrast to its situation in Japan, however, I.G. Farben had an alternative to direct investment. In fact, I.G. Farben drew up a plan together with ICI to purchase Holliday, and when that failed it established a joint venture with ICI to compete with Holliday.15 During this time, the exports of European firms to Japan were showing a downward trend. I.G. Farben’s exports to Japan fell sharply from 1,138 tons in 1932 to 630 tons in 1933, due mainly to the fall of the Japanese yen following the reimposition in December 1931 of a ban on the export of gold. Moreover, the amendment of import tariffs in May 1932 added 35 percent to the dyestuff tariff.16 Meanwhile, however, Waibel of I.G. Farben reported in February 1932 that the company still enjoyed steady sales in Japan, due to its cooperation with American companies as well as its emphasis on high-quality products. He also made the optimistic observation that the company could improve its relations with Japanese companies and, for the time being, minimize the negative effects of the depreciating yen by gaining an appropriate response.17 Economic realities, however, later showed such optimism to have been misplaced. The Japanese side observed that it ‘soon became impossible’ to import those items listed in the Saito–Waibel Agreement, and that the agreement ‘appeared to have become merely nominal.’18 The falling yen not only made it more difficult for I.G. Farben and other members of the four-party cartel to export to the Japanese market, it also threatened the cartel’s companies with Japanese competition in the Chinese and other Asian markets. Moreover, the Manchurian Incident of September 1931 marked a turning point in the Japanese Government’s policy on foreign capital, and the previous policy of welcoming foreign capital investment was replaced by one of rejection. Foreign capital was encouraged to be either phased out or ‘Japanized’ in ownership, and foreign firms were prevented from exercising control over the management of their joint ventures. Subsequently, the Japanese dyestuff industry, protected by the depreciation of the yen and other measures, enjoyed a second boom period, peaking in 1939. Japanese output capacity increased further, and Japan held a 3.2 percent share of total world sales in 1938. Its share of the Asian market was even higher and reached 10.5 percent in 1938. According to an estimate made by I.G. Farben, in the same year Nihon Senryo had a 60 percent share of the domestic market, Mitsui Mining 20 percent, Nippon Tar Kogyo (Japan Tar Industries, later renamed Nippon Chemical Industries, then Mitsubishi Kasei Kogyo – Mitsubishi Chemical Industries) 10 percent, and other firms 10 percent.19

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III THE CONCLUSION OF SPECIAL MARKET AGREEMENTS 1 The special agreement between I.G. Farben and Nihon Senryo Although I.G. Farben targeted Japanese firms generally, it concentrated on two leading companies which had the potential to develop new products. One was Nihon Senryo, which was putting its efforts into the development of a broad range of products centering on naphthol dyestuffs. The other was Mitsui Mining, which was developing alizarin dyestuffs, azo dyestuffs, and indanthrene dyestuffs with the express purpose of developing synthetic indigo. Thus, the international cartel and its member companies were forced to find new ways to deal with a challenging situation. One way was to intensify their efforts to conclude a series of bilateral agreements with individual Japanese firms and with the Japanese industry as a whole as a means of securing their outlets. I.G. Farben’s response was to pursue a strategy, devised in the 1920s, that aimed at concluding bilateral agreements with Japanese industry. With the advance of Japanese products, which were capturing ever-greater shares of the market, it was becoming increasingly difficult to keep the market open for free competition among members of the international cartel. On the other hand, the international cartel had grown stronger, making it possible for I.G. Farben to carry out negotiations with the Japanese to its own advantage through collaboration with its allies. The first individual or special market agreement concluded between I.G. Farben and Nihon Senryo was that regarding naphthol dyestuffs. I.G. Farben had recognized in the summer of 192720 the need for some kind of cooperation with Nihon Senryo on naphthol dyestuffs. At the beginning of 1931, Nihon Senryo put on the market Blue Salt-NSV to compete directly with I.G. Farben’s Variamine Blue-B, while at the same time putting in an application for a patent in Japan. I.G. Farben immediately voiced a protest over this. The two sides entered a patent dispute. In the end, I.G. Farben, recognizing that a patent dispute would take a long time to resolve in Japan, chose to compromise in order to avoid a renewed price war. Thus, in March 1931, the socalled Japan Variamine Blue Agreement with Nihon Senryo was tentatively concluded.21 Under the agreement, Nihon Senryo agreed to honor the patents of I.G. Farben in Japan (including Korea and Formosa), to pay license fees to I.G. Farben, and not to export identical products to the Asian market outside of China. In exchange, I.G. Farben recognized the right of Nihon Senryo to sell Blue Salt-NSV in the Japanese market. Moreover, an accord was reached on sales quotas for the Japanese market: for Variamine Blue-B of I.G. Farben (or Blue Salt-NSV of Nihon Senryo), I.G. Farben was allotted a 68 percent share and Nihon Senryo, a 32 percent share; and for Naphthol-AS of I.G. Farben and the equivalent Naphthoid-AS of Nihon Senryo,

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which were dyeing agents, I.G. Farben was allotted a 32 percent share and Nihon Senryo, a 68 percent share. At the same time, the sales prices for the Chinese market were to be the same.22 The agreement in March 1931 was a tentative one, and later a formal agreement was signed. It was concluded by I.G. Farben without any prior discussion within the three-party cartel. Three Swiss firms, partners in the three-party cartel, at first criticized I.G. Farben, saying that it should have requested their prior consent and that it made excessive concessions to the Japanese side; but in the end, they consented to the formal agreement. 23 This agreement was renewed in March 1935 and later automatically extended several times, until it expired in 1941.24 I.G. Farben also concluded the so-called Japan Astraphloxine Agreement, again with Nihon Senryo, in February 1934. Its main points ran parallel to the Variamine Blue Agreement. In return for relinquishing exports, Nihon Senryo got a 50 percent share of the Japanese market and I.G. Farben, the remaining 50 percent. Sales prices were to be the same. This agreement was also renewed, and lasted until the end of 1939.25 I.G. Farben concluded the two agreements independently. It obtained the consent of its partners in the international cartel, however. Thus, those individual or special agreements – on individual items as well as by individual companies – represented the means by which the international cartel could include the Japanese outsiders in their network. 2 The special agreement between I.G. Farben, the international dyestuff cartel, and Mitsui Mining It was I.G. Farben, too, that led the international cartel in the negotiations with Mitsui Mining, the other leading dye producer in Japan. The first agreement covered sulphur black dye for which, by 1928, Japan was almost self-sufficient. Among producers, Miike Senryo Kogyosho (Miike Dyestuff Works) of Mitsui Mining was the leader, holding a 70 percent share of the market. For Mitsui Mining, too, sulphur dye was the most important item at that time.26 In April 1931, the three-party cartel concluded an agreement with a leading trading company, Mitsui Bussan (Mitsui & Co.), as Mitsui Mining’s representative, regarding the sales and prices of exports to China. British ICI and two leading American firms, National Aniline & Chemical (Nacco) and Du Pont, were also drawn into this agreement. Mitsui Mining was awarded a 17.5 percent share of exports to the Chinese market.27 When the agreement expired at the end of 1933, it collapsed because of Mitsui Mining’s withdrawal from it, while the agreement with the six parties (the three-party cartel, ICI, Nacco, and Du Pont) was extended. Once the agreement of the six parties with Mitsui had collapsed, I.G. Farben began to reconstruct the agreement. On the one hand, it had to readjust its relations with Du Pont, which, together with ICI, was planning direct investment in China and

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was opposed to an automatic extension of the six-party agreement.28 On the other hand, it had to negotiate not only with Mitsui Mining but also with all other Japanese producers of sulphur black, following the collapse in March 1934 of a Japanese domestic cartel formed in October 1931. The competition among Japanese producers became keener than before, and their response to I.G. Farben’s proposal became disunited. Mitsui Mining, the leading Japanese company in this field, failed to show any interest in an agreement. Nihon Senryo was opposed to any restrictions on exports, although it agreed to cooperation in principle. Some other producers were in favor of an agreement.29 In the end, no new agreement was concluded, partly because of Du Pont’s disruptive behavior, but mainly because the position of many competing Japanese producers was one of disunity. Meanwhile, the Japanese producers of sulphur black were keen to export to China, Manchuria, and Dutch Indo-China. Some firms even directly invested in China. This represented a new threat for European exports to China.30 Other than the agreement on sulphur black dye, in October 1931 I.G. Farben concluded an agreement with Mitsui Bussan, which was to be the sole representative of Mitsui Mining with regard to alizarin blue. The agreement concerned the division of the Japanese market, and at first this was apportioned at a ratio of 60 percent to I.G. Farben and 40 percent to Mitsui. The agreement was, however, repeatedly revised, until its termination in 1940, when market shares were in fact reversed to 40 percent for I.G. Farben and 60 percent for Mitsui.31 IV THE MITSUI INDIGOAGREEMENT 1 The provisional agreement Among the market agreements that I.G. Farben, the three-party cartel, and the fourparty cartel concluded with the Japanese producers, the agreement with Mitsui Mining on synthetic indigo was the most important. In 1925, Japanese imports of the dyestuff amounted to 974 tons or 2.62 million yen (approximately 1.3 million US dollars), which accounted for 31.8 percent in volume or 35.9 percent in value of Japan’s total imports of dyestuffs. Synthetic indigo ranked second in importance after aniline. I.G. Farben was dominant in the export of indigo to Japan with a 72.7 percent share, although Swiss, French, and American producers had already succeeded in commercializing the product after the First World War. For I.G. Farben, too, indigo was its second principal export item to Japan after aniline.32 Mitsui Mining’s attempts to synthesize indigo date from the First World War. The company was unable to introduce the production technology from Germany and other nations and had to develop the production process by itself. In April 1926,

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after several years of trial and error, the company finally managed to achieve its aim of indigo production, but only in the laboratory. Therefore, it was natural that the Saito–Waibel Agreement of August 1926 did not list synthetic indigo as one of the items whose export was to be voluntarily restricted by I.G. Farben. The development and production of the dyestuff was not subsidized until October 1929, when Mitsui Mining finally managed to obtain a government subsidy. Construction of a new factory began in February 1931, being completed at the beginning of 1932. The factory’s output finally found its way onto the market in the second half of 1932. By 1933, Mitsui Mining became the largest supplier of indigo in the Japanese market, and it began to export to China.33 Meanwhile, leading European and American producers of indigo were expanding their network of oligopolistic agreements in the Asian market. Two leading American companies, Nacco and Du Pont, which in rapid succession had embarked on ventures of indigo exporting to the Far East, strengthened their efforts. At the beginning of 1931, the three-party cartel and ICI concluded an agreement with these two American companies, concerning the sales ratio and prices of indigo and other products in the Chinese market. This agreement was called the China Six-Party Dyestuff Agreement. Later, the six parties included Aziende Colori Nazionali Affini of Italy and Dow Chemical of the US in the agreement.34 On the basis of these agreements concerning the Asian market, the six parties concluded an agreement regarding indigo with Mitsui Bussan, the representative of Mitsui Mining, in February 1934. This concerned cooperation over the sales price and market share within the Japanese market, which was to be 25 percent for the six parties and 75 percent for Mitsui Mining. This was a temporary agreement which remained valid until July 1934.35 2 The formal agreement Negotiations for the conclusion of a formal agreement were begun soon after July 1934. The biggest issue of contention concerned the regulations governing Japanese exports to China, especially the decision on the Japanese quota for the Chinese market. I.G. Farben perceived that these negotiations offered a unique opportunity to protect the Chinese market from a recurrence in the fall of product prices. Thus it prevailed on its cartel partners, using the argument that, should the agreement be imperfectly concluded, Mitsui Mining would undoubtedly be able to exert a fairly strong influence on the price levels, not only of the Japanese, Chinese, and Manchurian markets, but of others as well. As I.G. Farben held the largest share in the Asian market, a share which it wanted to keep, it took the initiative in its relations with the other partners, in order to try to maintain the status quo.36

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Hermann Waibel of I.G. Farben prepared a draft proposal, to which the other members of the four-party cartel, as well as Nacco and Du Pont, gave their consent. Subsequently, Waibel negotiated energetically with Mitsui Mining. During the negotiations, he had to revise his original draft at least twice in order to get Mitsui’s consent. Finally, in May 1935, one year after the lapse of the tentative agreement, a settlement was negotiated in line with the latest of Waibel’s revised points.37 The formal agreement, which I.G. Farben called the Mitsui Indigo Agreement, stipulated that Mitsui would export its products only to China (including Manchuria, Hong Kong, and Dalian) and held the Japanese exports to China of 20 percentpurity indigo to a three-year total of 96,300 piculs. As compensation for this, the six parties were limited in their exports to Japan. The distribution of the Japanese market, including Korea and Formosa, was 85 percent for Mitsui and 15 percent for the six parties. The prices for the Japanese and Chinese markets were set at the same time.38 3 The renewal and revision of the formal agreement The formal Mitsui Indigo Agreement was to expire at the end of 1937. Mitsui Mining was fully satisfied with its performance in the Japanese and Chinese markets – and, therefore, with the agreement as it stood. As it did not want to have to accept new restrictions – which inevitably would be imposed by the uncertainties of the prevailing political climate in the Far East due to the outbreak of the Sino–Japanese War in July of the same year – it welcomed the agreement’s extension. Its foreign competitors also agreed to extend the agreement. Therefore, the agreement was extended, unchanged, until the end of June 1938.39 On the agreement’s expiry, the member companies of the international cartel had in mind a further extension. Mitsui Mining agreed, but it made requests for the abolition of, or at least a change in, the restrictions on the areas of export, and for the carrying over to the next year of the unused quota amount for 1937. The international cartel re-considered the direction it should take in the negotiations. The result was that it decided to compromise regarding the requests from the Mitsui side – that is, to change the existing stance limiting Mitsui Mining’s exports to China and Manchuria, and to allow exports of indigo to Dutch and British Indo-China, with a ceiling. I.G. Farben, as the representative of the four-party cartel, began negotiations with Mitsui Mining on the basis of this decision, while at the same time obtaining the agreement of the two American indigo producers, Nacco and Du Pont. However, even with the willingness of the international cartel to compromise, the negotiations proved tough and lengthy, especially because Mitsui Mining had in the meantime gone so far as to demand the total abandonment of the quota system. Moreover, when the Japanese side eventually agreed to the continuation of the quota system,

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it thrust a request before the international cartel, asking to be allowed to carry out exports to some areas the size of which far exceeded the expectations of the latter.40 The reason it took so long to reach a conclusion was not only Mitsui Mining’s requests, however, but also because opinions were divided within the cartel regarding the demands made. A confrontation arose between the two factions of I.G. Farben, on the one hand, and the Swiss, French, and British firms, on the other. The former faction was in favor of making concessions to Japan, while the latter wanted to take a tough stance.41 In the end, the international cartel made large-scale concessions to the Japanese side, approving Japanese exports, not only to China and Manchuria, but also to Dutch and British Indo-China, the Philippines, Thailand, the Straits Settlements, Iran, Egypt, Belgium, and Mexico. Moreover, in April 1939 an agreement was reached on the removal of quotas from the Japanese market.42 This agreement was extended until the end of 1940, but the war in Europe began before it had expired, and thus ICI broke the agreement.43 Meanwhile, Mitsui Mining had increased its production to enable it to dominate the Japanese market and, moreover, to advance into the Asian market throughout the latter half of the 1930s. At the same time, the international cartel sought to maintain a foothold in the Asian market by cooperating with American firms as well as by making concessions to Mitsui Mining. I.G. Farben showed itself more willing than did the other cartel-member firms to cooperate, while these other firms followed I.G. Farben’s lead although secretly opposing its stance. In the end, the international cartel as a whole made concessions to Mitsui Mining. Thus, there was no confrontation great enough to cause a collapse of the cartel until September 1939, when the Second World War broke out. In other words, despite the increased tensions, which reflected international political conflicts, the fourparty cartel succeeded in coordinating both the economic interests of the members and its relations with the American companies. Thus, on the face of it, the attempts to include Mitsui Mining, the Japanese developer of indigo, in the sphere of influence of the international cartel succeeded. However, the real situation was that the international cartel was forced into an immediate back-down when faced with Mitsui Mining’s demands. Few market agreements on dyestuffs were dissolved before the outbreak of the Second World War. The 1931 agreement between I.G. Farben and Mitsui Mining on the export of sulphur black to China was a rare case. Most international dyestuff cartels did not weaken until the outbreak of the war, and most achieved great success in regulating the volume and prices of exports in the world market.44 The Mitsui Indigo Agreement between the six parties and Mitsui Mining was one such case. The success, however, was achieved only through a series of concessions by the international cartel to Japanese firms.

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V CONCLUSION Based on our examination of the strategy employed by international cartels vis-à-vis the Japanese market, the following conclusions can be drawn. 1. The international dyestuff cartels, including the three-party and the four-party cartels, pursued a comprehensive agreement with the Japanese producers. The leader of the international cartels, I.G. Farben, was more willing to compromise with the Japanese than were the other member companies; the latter followed the lead of I.G. Farben with some criticism and hesitation. 2. The Japanese side wanted a series of individual or special agreements in order to keep its hands free to develop new products such as naphthol dyestuffs and indigo. 3. Through negotiations, the international cartels or their member companies, especially I.G. Farben, concluded a series of specific or special agreements with individual Japanese firms as well as with the Japanese dyestuff industry as a whole. The Japanese firms, which were the toughest competitors among firms outside the cartels, became partially drawn into the international cartels. 4. The Japanese firms proved to be troublesome members, however, so much so that I.G. Farben and the other cartel members were forced to make successive concessions. 5. Although the international cartels succeeded in including the Japanese firms in their networks, they failed to restrain the ambitions and capabilities of the Japanese firms in developing new products. 6. Finally, the Japanese firms, led by Mitsui Mining and Nihon Senryo, succeeded in introducing and exploiting European and American technologies as well as management skills, concluding a series of special or individual agreements with leading Western companies and international cartels.

3 Rivalry between German and Japanese trading companies C. Illies and Mitsubishi Shoji

Although German traders had been active in Japan since about the beginning of the Meiji period (1868–1912), it was not until the establishment of Japanese trading companies’ in Germany shortly after the First World War that the German traders faced any real competition. Then German and Japanese companies began to compete with one another for the trade of textiles, dyestuffs, iron and steel, machinery, and various other types of products. One example of this competition was the rivalry in the late 1930s between C. Illies & Co. and Mitsubishi Shoji (Mitsubishi Trading) over the export of Rheinmetall’s anti-aircraft gun to Japan. Since C. Illies & Co. was the largest German trading company in Japan and Mitsubishi Shoji was the top Japanese trading company in Germany, theirs was a rivalry between top-notch contenders. The historical data concerned with this episode has survived relatively well,1 and it is possible to chart in some detail the circumstances surrounding this rivalry. Taking for reference the approach of Kawabe Nobuo, who has published pioneering and wide-ranging research on Japanese trading companies overseas, this chapter examines the competitive relations that developed between C. Illies and Mitsubishi Shoji.2 I THE ACTORS 1 C. Illies & Co. and German trading companies in Japan The presence of German traders and trading companies in Japan dates back to the beginning of the Meiji era, when included among the pioneering traders who rushed into Japan with the opening up of the country to outside trade was a group of Germans. The trading companies of Hamburg and Bremen, in the tradition of the Hanseatic states, spread their trading net as far as India, Singapore, Hong Kong, and Shanghai, and the more adventurous of them dispatched agents to Kobe and Yokohama in Japan.3 Some of the companies even cemented commercial treaties between Japan and the Hanseatic states.4

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Export strategy

In the initial period of Japanese–German trade, the pioneering role carried out by German – particularly Hamburg – trading companies was of great importance. Until the 1890s, German companies exported railway materials, textiles, refined sugar, and other goods from Germany and raw cotton, Chile saltpeter, rice, unrefined sugar, and phosphate rock from third countries to Japan. Then, with the advance of Japanese industrialization after the 1890s, the kinds of goods imported by Japan from Germany changed. For the first time, trade began in such things as machines, worsted and other cotton goods, steel, electricity generators, and dyestuffs. Hamburg was the port from which most of this trade left Germany. In 1910, 60 million marks or 67 percent of the 89 million marks’ worth of German exports to Japan flowed from Hamburg. The same situation existed with regard to imports, and, in the same year, 78 percent or 29 million marks of the total imports valued at 37 million marks passed through Hamburg.5 In Japan, by 1900 the operations of over thirty German trading companies can be confirmed in Yokohama alone.6 Most of the firms based in Yokohama dealt with goods exported to Japan from Germany. Companies dealing with exports from Japan to Germany or a third country generally set themselves up in Kobe. German traders in Japanese exports from Kobe were comparable in number to British or Chinese traders at the end of the nineteenth century.7 The First World War and Germany’s defeat, however, dealt a blow to German trading companies in Asia, including those in Japan. Although there was some recovery of lost ground later, German trading companies were unable to regain their former prosperity and their growth was restrained following the emergence of Japanese trading companies as competitors at this time. The volume and nature of the trade between Japan and Germany changed. Exports to Japan from Germany increased astronomically, as the development of the heavy and chemical industries forged ahead in Japan. Different types of products were exported to Japan from Germany, with the volume of industrial machinery exported in particular rising sharply. Ironically, attempts to introduce German technologies, the superiority of which had been reconfirmed during the war, became more active. In this case, it was Japanese trading companies who were in a hurry to promote the introduction of technologies and the importation of manufactured goods from Germany. Meanwhile, moves by Germany’s large industrial firms to push forward their dealings with Japan and to organize this trade to their own best interests through the establishment of directly managed agencies had already been in evidence prior to 1914. The first such case was the establishment of a Tokyo sales office by Siemens & Halske in 1895. The formation of local concerns also began with the shift in Japan’s policies on foreign investment, a leading example being Siemens-Schuckert Denki (Siemens-Schuckert Electric), established in 1905. The trend to set up directly

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managed agencies became more common in the areas of steel, machinery, and dyestuffs after the First World War. For German trading companies active in Japan, these developments were a threat. Accordingly, some of the German companies built up collaborative relationships, cementing agency agreements between large industrial concerns while maintaining their own independence. Others survived by coming under the umbrellas of larger businesses. For instance, the Bremen company H. Ahrens & Co. Nachf. came under the direct management of I.G. Farben.8 Such responses had the effect of countering the newly emergent Japanese trading companies. In the wider scheme of things, however, the role played by German companies on the trading stage shifted to that of a supporting actor. The German trading company with by far the oldest record was L. Kniffler & Co., which was established in 1859. L. Kniffler & Co.’s successor was C. Illies, formed in 1880. In 1888, the head office was built in Hamburg, and the company steadily spread east to India, Hong Kong, Shanghai, Nagasaki, Kobe, and Yokohama. Before the First World War, it had offices in Tokyo, Yokohama, and Kobe, stationing two Germans in Yokohama and one in Kobe. Its exports to Japan included machines, textiles, iron and steel, metals, chemical goods, and medicines. It traded also in most Japanese goods, with the exceptions of raw silk and manufactured silk goods.9 In the competition for sales of steam engines to Japan at the end of the nineteenth century, Germany far outstripped Britain and prominent among the Germans was C. Illies.10 Like other German companies, C. Illies suffered a huge setback in the First World War, but, at the end of hostilities, it recommenced its activities. Following in the wake of the territorial expansion of Japanese industries, it set up offices in Manchuria, in parts of China, and in Manila during the Second World War. Meanwhile, in Eastern Europe, offices were established in Warsaw and Bucharest.11 At the same time, C. Illies formed agency relationships with many German businesses that had advanced into Japan. Examples of the main companies for whom C. Illies acted as agent are Krupp, MAN, Rheinmetall-Borsig, Henschel & Sohn, BMW, Bosch, Dornier, Hapag, and Norddeutsche Lloyd.12 Clearly C. Illies dealt in diverse trade, which qualified it as a general trading company in terms of manufactured goods. Rising to the challenge of the Japanese trading companies, and in an environment of increasing importation of German industrial goods, some German trading houses took a leaf out of the book of their Japanese rivals and diversified their trading lines. But rather than diversifying regionally, these companies specialized further in particular regions in Asia and in Japan. They became ‘regional general trading companies’ specializing geographically, but widening the scope of traded goods. This was in sharp contrast to Japanese trading companies, which, while diversifying their trade, were expanding geographically.

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The C. Illies trading company represented one type of German trading house, active in Japan during this period. C. Illies was also the largest German trading company up to the Second World War, but even C. Illies was technologically weak in comparison to Japanese companies like Mitsubishi Shoji. This shortcoming was revealed in its dealings with Bosch. Because of C. Illies’ lack of expertise, Bosch had to set up a Bosch department within C. Illies, have technicians seconded to it, and fund it separately. C. Illies’s job was merely to look after the sales route.13 C. Illies displayed relative weakness also in its dealings with the German Government. German trading houses involved in Japanese–German trade strengthened their ties with the German Government, particularly after the 1930s. Accordingly, the center of activity moved from Hamburg to Berlin, Germany’s imperial capital. (In Japan, the center of gravity had shifted much earlier – in the 1920s – from Kobe to Tokyo.) C. Illies’ Berlin office, established in the 1920s, was upgraded to a branch office in 1938, in recognition of Berlin’s growing importance for the trading house. [Not only was Berlin] important at that time as the place where the Japanese Imperial Embassy, the agencies of its government and those of private Japanese businesses were located, but it was also important after the German imperial civil service came to be concentrated there following the German Government’s strengthening of its control over the domestic economy and foreign trade. The company needed to maintain normal and equitable links with each of these organizations.14 This move was in part a countermeasure that preserved existing interests from the challenge of Japanese trading companies. Even so, differences remained between the Germans and their Japanese rivals; for one thing, the small and medium-sized German trading companies did not develop particularly close governmental ties. 2 Mitsubishi Shoji and Japanese trading companies in Germany At the turn of the century, Japan’s importing of German goods such as machinery and chemical goods greatly increased. Accompanying this, Japanese traders and trading companies advanced into Germany, especially Hamburg, although at this time they were still weak. On the proposal of one of the leading politicians, Okuma Shigenobu, the German–Japanese Commerce Committee was established in 1911, with a branch office in Berlin. This represented an attempt to win trading rights from foreign, particularly German companies, which were monopolizing the trade between Japan and Germany, but the attempt ended in failure when the Berlin office experienced funding difficulties one year later.15 Despite these setbacks, Japanese trading companies rapidly gained ground. Taking advantage of the situation created by the First World War, they went on to become the leading importers to Japan of German industrial manufactured goods

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and technologies. Trading companies rather than manufacturers carried out the collection of information technologies and technology evaluation, signed agreements on behalf of manufacturers, and involved themselves in the importation of machinery and technologies. As a result, they accumulated the necessary specialist knowledge and foreign language skills; some company employees even had doctorates. First Mitsubishi Shoji, and then Mitsui Bussan (Mitsui & Co.), Okura Shoji (Okura Trading), Asano Bussan (Asano Trading), Takata Shokai (Takata & Co.), Suzuki Shoten (Suzuki & Co.), Iwai Shoten (Iwai & Co., now Nissho Iwai), Ataka Shokai (Ataka & Co., later Ataka Sangyo – Ataka Industries), and Nozawa Gumi (Nozawa & Co.) established and steadily built up agencies, branch offices, liaison offices or local firms in Germany, presenting keen market competition to the German companies trying to lay down roots in Japan. These activities steadily undermined the monopoly position that had been enjoyed by German businesses in Japanese–German trade. Fittingly, Japanese trading companies were known at that time as ‘import trading companies.’ This is because their role was almost entirely to import into Japan machinery and chemicals from Germany. At the head of the Japanese trading companies advancing into Germany was Mitsubishi Shoji. In its relationship with many German enterprises, such as Krupp and MAN, it was impressively dynamic. In this respect, Mitsui Bussan and Okura Shoji, although never far behind Mitsubishi Shoji, as well as Asano Bussan, Takata Shokai, Suzuki Shoten, Iwai Shoten, Ataka Shokai, and Nozawa Gumi, all played second fiddle to Mitsubishi Shoji. Mitsubishi Shoji’s entry into Germany occurred as follows. In September 1915, Mitsubishi Goshi (Mitsubishi Ltd), the headquarters of the Mitsubishi zaibatsu group, established a branch office in London. After the war, in September 1919, this office set up an agency in Berlin, stealing the lead on other Japanese trading companies. In January 1921, both the Berlin and London operations came under the management of Mitsubishi Shoji.16 In February 1928, the Berlin agency (Mitsubishi Shoji Kaisha, Ltd., Vertretung Berlin) became the corporation Mitsubishi Shoji Kaisha GmbH.17 For Mitsubishi Shoji, ‘fortunate circumstances’ pertained, later to be described by an employee: [Japanese] Military attachés dispatched to Germany at that time had their interest excited by some new and powerful German weapons, but they had to give up the idea of purchasing those weapons under the Powers’ noses. That is why our agents were repeatedly used. Thanks to them, notable cases, such as the importation of submarine engines and batteries in 1920, and the importation of Rohrbach’s flying boat in 1922, not only confirmed the place of our firm among German manufacturers, but also built up a superior position for us in German machines, which our rivals will find unassailable for some time to come.18

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It is impossible to list all the firms with which this company had business relations, but names like Krupp, Thyssen, MAN, Demag, Esslingen, Benz, Junkers, Zeppelin, Rohrbach, Lurgi, Linde, Schlämann, Oskar Kohon, Otto, Hydraulik, Riedhammer, and I.G. Farben are the most representative. Relationships were forged with other enterprises, too, when technological imports were made. The Krupp-Renn process, I.G. Farben’s Haber-Bosch process, and the Winkler process are all examples. Neither were the users of these technologies limited to members of the Mitsubishi zaibatsu.19 The impact of the imports of German products and technologies was thus great, not least for Mitsubishi Shoji. Japanese domestic imports of foreign machines in the first half of 1936 gave Germany a 9.42 million yen share, widening the gap with the United States, whose trade was worth 2.21 million yen. German machines accounted for 64 percent of the entire amount of machines imported by Mitsubishi Shoji.20 Meanwhile, Mitsui Bussan, which had demonstrated its strength in ties with American and British manufacturers, moved closer to German manufacturers. On one occasion, immediately after the First World War, it finalized exclusive sales contracts with ten German machinery makers.21 In the 1930s, it had agency agreements with four German machinery producers, and major dealings with thirty-five other businesses, mostly machinery manufacturers. They included Demag, Krupp, Hydraulik, Koppers, Lurgi, Ruhrchemie, and Schlämann.22 It also concluded licensing agreements for the introduction to Mitsui Mining, among others, of the FischerTropsch oil-synthesizing process from Ruhrchemie.23 Through its agency agreements with AEG before the First World War, Okura Shoji developed an importing business centered around AEG and Telefunken electrical machinery. In addition, there were deals with other electrical machinery manufacturers including Krupp, GHH, Mannesmann, Demag, Schlämann, Voigt, and Otto.24 If a comparison is made between C. Illies and Mitsubishi Shoji, as representative German and Japanese trading companies, in terms of scale of company, areas of activity, product lines, technological capacity, and supplier and government relationships, the following generalizations can be made. The scale of the C. Illies enterprise was relatively small, and it was marked by specialization of geographical areas and a diversification of products. Its relationship with producers came mostly in the form of agency agreements, and the company’s technical expertise was not particularly strong. Neither did C. Illies have an especially close relationship with the Government. On the other hand, Mitsubishi Shoji’s scale was comparatively large, and it realized both global development and product diversification. It enjoyed intimate linkage with producers, particularly with Mitsubishi companies. Its technical expertise was relatively advanced. Moreover, its relationship with the Japanese Government was close. Listing the various attributes of each of these companies gives little more than a static picture, however. The next section thus will offer a comparison that tackles

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the relationship between businesses in an attempt to explore a more dynamic dimension. 3 Rheinmetall The Rheinmetall company was established in 1889, and its activities were centered on the manufacture of munitions. It developed the seamless steel tube before the First World War, and in this field it built up a position for itself alongside that of Mannesmann. Unlike Mannesmann, Rheinmetall moved into armaments production. Finding itself in the midst of the disarmament that followed the First World War, however, the company diversified its production, developing such products as typewriters, while at the same time, carrying out rationalization of its steel tube, rolling, and steel processing operations. In 1933, it brought under its umbrella A. Borsig GmbH, a large locomotive manufacturer, and this company then became A. Borsig Maschinenbau. Two years later, A. Borsig Maschinenbau was absorbed by the parent company which, in the following year, emerged under the name Rheinmetall-Borsig AG.25 In Chandler’s list26 of the top 200 German companies for 1929, Rheinmetall ranked eightieth and Borsig took 112th place. By the 1930s Rheinmetall was once again specializing in armaments. The most competitive firm in this field was usually Krupp, for which C. Illies acted as a special agent. Today, Rheinmetall Berlin AG is the holding company of the Rheinmetall group, while Röchling Industrie Verwaltung GmbH (the Röchling family) holds a majority stake in it. Along with machinery and automobile parts, armaments is one of the three main fields in which the group is involved, something for which Rheinmetall GmbH is particularly responsible.27 One weapon that became the object of competition between Mitsubishi Shoji and C. Illies was Rheinmetall’s 7.5-cm caliber L/59 anti-aircraft gun. We shall now examine this case. II THE BATTLE 1 C. Illies’ enquiries The C. Illies trading house first began to have dealings with Rheinmetall concerning the export of armaments to Japan immediately following the outbreak of Japanese hostilities in China, which were initiated by the Marco Polo Bridge Incident of July 7, 1937. To be more precise, C. Illies passed on to Rheinmetall the request of members of Japan’s military establishment to be present at Rheinmetall’s test-firings. In reply, Rheinmetall said that it wanted to know the type of weaponry in which the Japanese were interested. Its tone was business-like; and there was little enthusiasm in the response, which was relatively cool.28 Incidentally, from August of the same year,

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Japanese tours of German factories were required to have a certificate of recommendation from the German Embassy in Japan or its Consulate, following an agreement between the German and Japanese Governments. Consequently, at the time of the initiation of Japanese hostilities in China, the barriers facing Japanese businesses wanting to learn from their German counterparts were, if anything, on the increase.29 Next, C. Illies enquired about the possible type and quantity of weapons that could be exported to Japan. Naturally, knowing that a war between Japan and China had begun, the trading company saw a commercial opportunity for exports of Rheinmetall weapons to Japan.30 Rheinmetall, however, was not enthusiastic, telling its agent that the weapons the Japanese were interested in were ‘not in stock.’31 The arms manufacturer had more than enough domestic demand to cope with, and in all probability genuinely lacked the capacity to export. Furthermore, with the start of the Sino–Japanese War, the German Government attached a number of conditions to the export of military equipment to Japan and China. As the risks attaching to such exports increased with the prosecution of the war, from July 15 the German authorities set a condition for approval of exports to this region: namely, that payment be made in foreign exchange. In August, it became compulsory for military weapons exported to Japan to be paid for in full in foreign exchange. From September, all exports bound for Japan and China were approved only on the condition that they were entirely paid for in foreign currency.32 Shipment to the Far East was also difficult, as ‘pre-payment for transportation’ (Frakaturzwang) was made mandatory by the Aviation Industry Economic Organization, the industry’s regulating organization.33 It was decided that such things as the transfer to Japan and China of educational training in armaments production and trade in military equipment required special scrutiny.34 At this stage, German Far-Eastern diplomacy still favored the Chinese. Germany continuously dispatched military advisory missions to China and its military exports to the country were continued. Although Germany’s diplomatic policy shifted after 1938, Japan and Germany still could not treat each other favorably when foreign currency was scarce and there was a need to control foreign exchanges. Thus, despite some political convergence, Germany did not lower its guard in its trade relations with Japan. 2 The Godo mission and weaknesses in C. Illies At about this time, a Japanese mission to procure weaponry and machinery and headed by the former Commerce and Industry Minister, Vice Admiral Godo Takuo, left for Germany via the USA. Advance warning reached Rheinmetall, not through C. Illies but through one of its agents in Afghanistan. According to this source, the party included experts and the total purchasing budget amounted to several billion reichsmarks. It was

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understood, too, that the mission was intent on setting up a credit framework with the German Government, and that the items it was most interested in were steel manufacturing plants, armaments, and machinery. The Afghanistan agent who had provided this information returned to Germany and positioned himself as the gobetween in commercial negotiations with Rheinmetall, through his connections with the Japanese Embassy’s military attaché, a lieutenant-colonel named Arima. Rheinmetall reacted by abandoning its previous cool stance that the armaments in question were ‘not in stock’ and, instead, busied itself with preparations. Such were its expectations of the Godo mission’s procurement budget. At the same time, Rheinmetall’s suspicions were raised as to why similar information was not forthcoming from C. Illies, its agency in Japan.35 C. Illies, however, had little access to sources of such information, particularly military sources, and these limitations became all the more apparent. Despite its efforts, Rheinmetall did not succeed in obtaining any orders from the Godo mission, even by December 1937. Meanwhile, word was received that the Japanese War Ministry had begun to place orders with the American and Italian armament industries. It was believed that the American orders amounted to US$500,000. Rheinmetall was unable, despite a great deal of effort on its part, to fathom why it was unable to win part of the Japanese orders, so it demanded information from C. Illies on the details of the US and Italian orders.36 In a letter to Rheinmetall dated October 28, C. Illies informed its client that the Italian orders were for fifty Breda airplanes and weapons for the army. C. Illies had been in Heinkel’s corner in this commercial sparring match, but the delivery period offered for the Heinkel planes did not meet the requirements of the Japanese (as C. Illies and Heinkel were unable to obtain approval from the German authorities), and so the German companies lost out.37 C. Illies failed to tell Rheinmetall anything about the American orders. Information concerning them finally reached Rheinmetall some two months later, at the beginning of February 1938. As it turned out, Japan would not be purchasing any weaponry from the US for several years, because there were doubts about the technological standards of US goods.38 Rheinmetall was incredulous. C. Illies had not developed a US operation, and, as a result of its regional specialization, its ability to collect information was impaired. Just how poor its connections with Japanese military clients were became all too clear: they were on the same level as those of Rheinmetall’s agent in Afghanistan. In a late effort, C. Illies provided, at the request of Rheinmetall, a list of important military personnel in Japan and the names of military officials in the Japanese Embassy in Germany. The intention was to send New Year greeting cards to those whose names were on the list.39 Rheinmetall now began to see its lack of success in commercial negotiations with the Japanese military as the product of C. Illies’ weak

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links with key figures in Japan’s military establishment.40 Confidence in C. Illies began to ebb away. 3 The Godo mission and the participation of Mitsubishi Shoji As these events were occurring in December 1937, Mitsubishi Shoji began to make contact with Rheinmetall. Mitsubishi had a stake in the commercial opportunities that came with the Godo mission’s visit to Germany, and a central personality within Mitsubishi Shoji’s German operation was Kani Takao, who held a doctorate in engineering. Rheinmetall, which was losing confidence in the C. Illies trading house, began to look with some hope to Mitsubishi Shoji instead. The Afghanistan agent, who previously had somehow produced information, mediated between Mitsubishi Shoji and Rheinmetall. According to this agent, the Godo mission’s main objectives, through Mitsubishi Shoji, were as follows: the mission intended to purchase a huge amount of both civilian and military goods, but only on the condition of trade credit. The mission had definite plans to order Rheinmetall’s 7.5-cm caliber anti-aircraft gun, the L/59, and other larger caliber antiaircraft weapons. Again, this was on the condition of five or six years’ credit, although the Mitsubishi zaibatsu group and the Japanese Government did give guarantees of payment. The method of payment was to be a deposit of 10 or 20 percent, followed by payments in equal installments, and 30 or 40 percent being advanced before receipt of the goods. These were the main points of what the Godo mission had in mind. Compared with C. Illies’ intelligence, Mitsubishi’s terms were specified explicitly and the conditions also were made clear beforehand. Rheinmetall showed interest. While it conveyed the decision of the authorities not to give credit for exports to the Far East, Rheinmetall decided to negotiate with Mitsubishi Shoji on this matter anyway and explored the matter further. Mitsubishi Shoji’s Kani had no intention of carrying out dealings that would mean his company’s coming to blows with C. Illies over its agency agreement, but he desired to deal with Rheinmetall directly. He felt that his company would wish to be involved because relatively large amounts were involved, as not only were Japanese Government orders anticipated, but it was expected that orders from the Mitsubishi zaibatsu group would follow.41 Enquiries coming through Mitsubishi Shoji became increasingly concrete. An amount totaling 10 million reichsmarks was earmarked for 100 L/59 anti-aircraft guns for the Kwantung Army in Manchuria, as well as for 15-cm L/32 and 10.5-cm L/53 anti-aircraft guns.42 In his contact with the German Government, Kani made use of Oshima Hiroshi, an army attaché in Japan’s Embassy in Berlin. Oshima suggested putting to use his connections with Hermann Göring, the number-two man in the Nazi Government’s hierarchy.43

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The differences between Mitsubishi’s enquiries and those of C. Illies were: first, Mitsubishi’s personnel were technicians or ‘merchant engineers’; second, Mitsubishi enjoyed good relations with the Japanese Government; third, and as a result, it was able to specify exactly what weaponry was involved. Also, Mitsubishi had closer contact with Rheinmetall’s Central Weaponry Sales Department, which had more direct links with the Weapons Production Division, rather than the Armaments Export Department. The Central Weaponry Sales Department could thus respond more rapidly to Mitsubishi’s requests. On the other hand, C. Illies’ requests for information were imprecisely phrased. Difficulties were experienced probably because of the relatively low standards of technical expertise at C. Illies and also the poor quality of the Germans’ contacts in the Japanese Government. In addition, for C. Illies, the route of communication with Rheinmetall was mostly through the Armaments Export Department, which was very cautious about factory inspections by the Japanese; whereas the Central Weaponry Sales Department, which had more technical responsibilities, showed some coolness towards C. Illies. 4 Rheinmetall favors Mitsubishi Shoji Hungry for Japanese exports, Rheinmetall was quick to add the 7.5-cm L/ 59 to its public test-firing. Bulgarian and Iranian military officials were also invited to the trials, but this exercise was designed to impress the Japanese military officials and Kani from Mitsubishi Shoji. The company also made preparations to oblige Kani and the others in their request for a factory visit. In the previous months, factory tours by Japanese nationals were treated with extreme caution, but in less than six months attitudes had changed, and they were now to be welcomed.44 Thus, the Godo mission was able to witness the test-firing and inspect the factories. Among those guests listed can be found the names of Godo, the leader of the mission, an officer called Nagai, who was Godo’s deputy, Iino Koji from Mitsubishi Shoji in Germany, and another officer called Akatsuka, a director of Minami Manshu Tetsudo (South Manchurian Railway).45 While this was taking place, Rheinmetall sent a list of its specifications to Mitsubishi Shoji and, subsequently, answered some technical queries from the Mitsubishi group. Rheinmetall was willing to negotiate the supply of credit with Mitsubishi Shoji. The conditions themselves indicated some revision of the details, and the length of time of the credit provision was reduced to three or four years. Rheinmetall and Mitsubishi Shoji were largely agreed on this issue.46 This was significant, as the German Government had, since the outbreak of the Sino–Japanese War, successively toughened limits on the exportation of armaments to Japan and China and imposed measures such as making approval dependent on all payment being in foreign currency. In December 1937, the Ministry of Economic Affairs further tightened the

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restrictions on exports to Japan. It gave notification that all deals where the provision of credit went beyond the customarily determined periods of time for each type of product had to be reported to the ministry through the investigative authorities in each industry – the Wirtschaftsgruppe, or official trade associations – before negotiations or a contract for sales could be undertaken. At the time when Rheinmetall was considering export credits, the provision of credit for more than a fixed period for any export to Japan had become subject to investigation by the authorities.47 At the end of January 1938, C. Illies, although now trailing behind Mitsubishi Shoji, was finally able to make concrete proposals, specifying particular weapons. As in Mitsubishi’s request, it was the L/59 anti-aircraft gun that was of prime interest but the quantity was somewhat different, and only pricings for 12 and 24 units were requested. In addition, 10.5-cm caliber anti-aircraft guns plus 7.5-cm mountain guns were discussed, adding up to procurements of 10 million reichsmarks, equal to Mitsubishi’s sum. It was not clear who was placing the orders, although, as mentioned earlier, Mitsubishi had suggested that it was the Kwantung Army.48 C. Illies also received a request from the Japanese navy to make enquiries about a 10.5-cm antiaircraft gun.49 Enquiries were made in this fashion on behalf of the Japanese armed forces through both Mitsubishi Shoji and C. Illies, and directed at Rheinmetall and its L/59. Rheinmetall’s response made it look as though it was trying to chase two rabbits at the same time. On the one hand, it was aware of the attractions of dealing with Mitsubishi, and while it was bound by respect for the orders of the Ministry of Economic Affairs on the provision of credit, it hoped by some means to break through this impasse.50 On the other hand, it valued its agency contract with C. Illies and was concerned lest C. Illies lose prestige. Because of these kinds of problem, it kept its negotiations with Mitsubishi secret from C. Illies in the early stages. Inevitably, C. Illies came to hear of them throught the Japanese army, as Rheinmetall had expected it would. Even so, Rheinmetall hoped to avoid this embarrassment before the rivaling negotiations with the two companies reached their conclusion.51 Rheinmetall’s Central Weaponry Sales Department continued with its preparations for estimates. It priced an order of 12 units at 53,450 reichsmarks per unit, and calculated the reduced figure of 51,200 reichsmarks per unit for an order of 24.52 Great importance was attached to Mitsubishi in these preparations. Requests were made for estimates for parts from Rheinmetall’s suppliers, such as SiemensSchuckertwerke, Electroacustic, and Carl Zeiss, and, at the time, Rheinmetall indicated that these enquiries had come from Mitsubishi. It asked these manufacturers for the necessary groundwork to be undertaken for export credits, which was an obvious indication of Rheinmetall’s interest in the prospect of dealing with Mitsubishi.53

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5 C. Illies’ counterattack Eventually, C. Illies learned of Rheinmetall’s plans. Knowing that Rheinmetall’s talks with Mitsubishi conflicted with the former’s agency contract with C. Illies and also that any provision of credit clearly went against the orders of the German Government, C. Illies adopted a counterattacking stance. C. Illies called repeated attention to the existence of the agency agreement. It was supported in this by one of the parts suppliers, Electroacustic, which expressed the wish to Rheinmetall that its supplies be made through C. Illies, its agent.54 Such countermeasures had their effect. Although the provision of estimates for Mitsubishi could not now be refused, Rheinmetall could be forced to accept that the estimates go through C. Illies, the agent.55 On the issue of credit provision, C. Illies took the step of passing on to the German Embassy in Japan the details of Rheinmetall and Mitsubishi’s negotiations, claiming Germany’s national interests were being compromised. The German Embassy informed the Ministry of Economic Affairs back in Germany, which made enquiries with Rheinmetall’s Central Weaponry Sales Department. This department informed the ministry that the supply of credit had not yet been decided. The German Ministry of Foreign Affairs also was advised of these particulars, and it concentrated on Rheinmetall’s Armaments Export Department. This department told its inquisitors that the intelligence according to which such a large amount of credit would be provided to Japan was actually misinformation. Differences had emerged in the responses of Rheinmetall’s two departments; and it seemed clear that it was the Central Weaponry Sales Department which showed the greater enthusiasm for exporting to Japan.56 Ultimately, the maneuvers by C. Illies to involve the German Embassy in Japan produced results, and it was able to force on Rheinmetall an agreement to conduct the deal with Mitsubishi based, not on credit, but on hard cash.57 In early March 1938, C. Illies sent a document to Rheinmetall confirming that submission of estimates to Mitsubishi should be done through itself, and that the basis of the deal would be cash rather than credit. Rheinmetall, as well as making a positive reply, also conditionally undertook to pay a special rebate of 5 percent in the event of a contract being signed.58 C. Illies’ counterattack had succeeded. However, its success was only partial, since C. Illies was unable to halt the trade talks between Rheinmetall and Mitsubishi. In fact, not only did Rheinmetall continue with the negotiations on the assumption that any sales would take place on a cash basis, but, contrary to the promises made to the Ministry of Economic Affairs and C. Illies, Rheinmetall had not entirely ruled out sales based on credit.

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Rheinmetall, together with its suppliers, Siemens-Schuckertwerke, Electroacustic, and Carl Zeiss, continued with its preparations to provide estimates for the 100 L/ 59s, and while these were mostly for cash sales, it also gave credit-based estimates, in the event that approval was received from the Ministry of Economic Affairs.59 Rheinmetall then applied to the German authorities for export permission. In the application to the Aviation Ministry, it specified the exports to Manchuria of 100 7.5cm caliber L/59 anti-aircraft guns and 12,000 rounds of ammunition, with the requirement that payment be made entirely in foreign currency (50 percent to be paid at the signing of the contract, and the remainder on completion of the shipment).60 6 C. Illies’ second counterattack C. Illies was by no means satisfied with these partial results, however. The agency had hoped that Rheinmetall would abandon its dealing with Mitsubishi Shoji, and come back to working with the German agency. Therefore, when Rheinmetall attempted to establish its arrangement with Mitsubishi on a cash basis, C. Illies responded by mounting a further counterattack. As C. Illies anticipated that Rheinmetall would continue to bargain for a credit based-deal with Mitsubishi, the trading company again took the matter up with the German Ministry of Economic Affairs. It referred to the bilateral commercial treaty negotiations then taking place and underlined the question of German national interests. Then, while raising the example of Misui Bussan, which was uninvolved in the trade dispute,61 C. Illies criticized the advance of Japanese trading companies in general. Its main argument was that the real objective of Japanese trading companies was to curtail German exports to, and exclude German trading companies from, Japan.62 C. Illies approached other institutions. The German Chamber of Commerce in Japan backed C. Illies’ campaign after the accusation was made that small and mediumsized businesses in Germany were being pressurized by large Japanese trading houses. The German Embassy in Japan also supported C. Illies, as did the Aviation Industry Economic Group, which was the trade association of the German aviation industry.63 Rumors spread that the German authorities would approve a credit basis for exports to Japan, although matters were complicated by further rumors that the source of this information was Mitsubishi Shoji. When the Ministry of Economic Affairs and the Reich Industry Group, representing the business world, informed Rheinmetall of these rumors, the company was obliged to promise that it had not abandoned its commitment to a cash-only deal.64 In the spring of 1938, Rheinmetall, along with Siemens-Schuckertwerke, Electroacustic, and Carl Zeiss, sent its estimates to Mitsubishi. C. Illies, meanwhile, was fighting tooth and nail. For example, it suggested that Mitsubishi’s enquiries

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were false, telling Rheinmetall that the Kwantung Army had not agreed to the order for the 100 L/59s.65 Moreover, it told Rheinmetall that Mitsubishi had made contact with Krupp and was looking into the possibility of ordering the Krupp 8.8-cm caliber anti-aircraft gun, which rivaled Rheinmetall’s L/59, even though this information was unconfirmed.66 Thus, in some respects, the competition between C. Illies and Mitsubishi over the Rheinmetall 7.5-cm L/59 anti-aircraft gun gradually took on the character of a war between German and Japanese trading companies. This was largely due to C. Illies’ campaign. 7 The outcome Six months after the estimates had been sent from Rheinmetall in October 1938, the Japanese side asked that payment be accepted in reichsmarks rather than in hard currency. Rheinmetall once more made the necessary enquiries and gave a provisional reply to Mitsubishi through C. Illies, saying that this would be acceptable.67 It is likely that they now had the approval of the German authorities.68 Nevertheless, by April 1939, the negotitations still had not been concluded. Further enquiries arrived from Manchuria about an order for 48 L/ 59s, so that, with the 100 units for which estimates had already been tendered, the total amount under discussion was 148 guns. However, the Japanese and Manchurian sides were still withholding their orders. C. Illies, which passed on the supplementary enquiries direct from Mitsubishi, saw the commercial treaty negotiations between Germany and Japan, which were undergoing difficulties, as one inhibiting factor.69 The talks, which finally got under way immediately after the Marco Polo Bridge Incident and the outbreak of hostilities in the Sino–Japanese War in July 1937, quickly fizzled out and were never concluded. Mitsubishi Shoji’s company history records, in its dealings with Rheinmetall,70 a contract for machine guns for the army in 1939, but there is no mention of anti-aircraft guns. In July 1939, C. Illies informed Rheinmetall that there was no immediate prospect of Japanese orders, and, following the air war for Nomonhan on the Manchurian– Soviet border, it passed on the comments of an officer in the Kwantung Army with whom an employee of one of its branch offices in Dalian had met.71 Elated by the news from the front that a further fifty-five Soviet planes had been downed, while Japanese casualties were light, this officer commented: I cannot endorse the procurement of high-quality anti-aircraft guns like Rheinmetall’s because of the extremely poor standards of the Soviet aircraft and the training of the Soviet pilots. The anti-aircraft weapons already in use by the Japanese army are adequate to deal with our potential enemy in Manchuria, the

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Soviet Union . . . . In any case, we don’t have the money to make purchases from abroad. There haven’t been enough purchases of soybeans by the Germans, you see.72 His words contained a recognition of the superiority of the Rheinmetall-manufactured L/59, and he admitted without reservation that the performance of the Kwantung Army’s own anti-aircraft guns was poor by comparison. But there were clear reasons for not making the purchase: namely, an optimistic assessment of the military achievements at Nomonhan and the perceived inferiority of the Soviet air force, the over-estimation of the domestically produced anti-aircraft guns, and a frank admission of the lack of foreign currency in Manchuria. III CONCLUSION Consequently, in the two years between the Marco Polo Bridge Incident and Nomonhan, both C. Illies and Mitsubishi Shoji were unable to achieve any concrete results on their bid for the export to Japan of Rheinmetall’s L/59 anti-aircraft gun (in fact the exports were to be made to the Kwantung Army). The talks failed because of a lack of foreign currency on the Japanese side and its mistaken expectation of credit from the – then politically friendly – German Government. In addition, there was an excessive confidence in domestically produced goods. In Germany, too, the Government would not allow export credit, and it set as the condition for export approval 100 percent payment in foreign currency because of its own lack of foreign currency reserves. Essentially, then, one can say that the main reason for the failure of the negotiations was a lack of foreign currency on either side. Neither C. Illies nor Mitsubishi made huge tactical errors, and the fact that Mitsubishi failed to obtain a contract in no way meant the opening of an opportunity for C. Illies. In this case of rivalry between trading companies, the competitive edge belonged to the company which was able to draw the supplier, Rheinmetall, toward it. This was demonstrated by the fact that Rheinmetall was more attracted to talks with the Japanese traders. Rheinmetall also gave Mitsubishi the priority as early as the estimating stage, and, in response to Japanese demands, it pursued the possibility of a deal based on credit, even though C. Illies was its agent. What was it, then, that gave Mitsubishi this competitive edge? Disparity of scale of the two trading houses was not a significant factor. Both companies diversified their trade, so failure in that respect cannot be said to have been decisive. Neither was the closeness of their relations with the manufacturers put to any real effect in negotiations with the military clients. When C. Illies conducted its anti-Mitsubishi campaign, it pointed out Mitsubishi’s close relationship with Mitsubishi manufactureres, which may have worked to the Japanese company’s advantage.

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Perhaps the crucial factor was the difference in the approach to regional development of the two firms. If C. Illies had had a base in the United States, it might have been able to obtain information concerning the Godo mission sooner. In addition, the differences in technical capacity were enormous, filtering down to the scope and detail of their respective enquiries. As C. Illies’ ability to cope with technical information was relatively poor, it was something of an amateur in its approach, whereas Mitsubishi had well-qualified staff, such as Kani, and because they were in the forefront of negotiations, the firm’s enquiries were technically precise. This also had much to do with the differences of approach and access to their respective government institutions. In this instance, the customer was the Japanese military, and Mitsubishi’s advantage was thus decisively big. C. Illies, however, still enjoyed better access to the German Government, and building on this, it was able to prevent Mitsubishi from concluding a contract. Fittingly, it was in the midst of this dispute that C. Illies upgraded its office in Berlin to the status of branch office. Thus, if we pursue a dynamic comparison through an analysis of business relations, although Mitsubishi was unable to gain the contract, the differences in competitive advantage can be explained mostly in terms of technological expertise and relationships with governments.

4 Competition and cooperation among German companies Krupp, I.G. Farben, and Japan’s synthetic oil project

In their economic preparations for war, both Japan and Germany regarded synthetic oil as one of their most highly valued strategic resources: each country lacked natural oil resources. Full production of synthetic oil in Germany began after the implementation of the Second Four-Year Plan in October 1936.1 In July 1937, almost concurrently with the outbreak of a full-scale war with China, the Japanese Ministry of Commerce and Industry formulated its own plan to promote synthetic oil production. The Japanese plan called for an annual production level of 2 million kiloliters to be achieved within seven years. In August of the same year, the Synthetic Fuel Production Law and a law establishing Teikoku Nenryo Kogyo (Imperial Fuel Industry) were enacted, and the two went into effect in January 1938. Now, synthetic fuel suddenly came to the fore as a high-technology industry, and a large number of projects made their appearance (see Chapter 7, section I).2 At the time, Japan and Germany were drawing closer politically, signing the AntiComintern Pact in November 1936. After the failure of the peace efforts by the German Ambassador to China, Oskar Trautmann, Germany formally recognized the existence of the state of Manchukuo by signing the German–Manchurian Friendship Treaty in May 1938. This was followed on the Japanese side with the adoption by the five ministers’ conference in July of a plan to form an anti-Soviet military alliance with Germany as a means of strengthening the Anti-Comintern Pact. In October, Oshima Hiroshi of the pro-German faction took over from Togo Shigenori as Ambassador to Germany. Eventually, after overcoming the various difficulties that followed, Japan and Germany joined with Italy in forming the Tripartite Pact in September 1940.3 What was the effect of this political rapprochement between Japan and Germany on the transfer of synthetic oil technology? This subject deserves special attention in view of the fact that this pact had economic and technological cooperation as one of its principal aims.

Competition among German companies

I

67

JAPAN’S PROJECT FOR SYNTHETIC OIL PRODUCTION AND KRUPP’S ACTIVITIES IN JAPAN

1 Krupp’s intention to export and the veto by the Four-Year Plan authorities One of the methods used in the production of synthetic oil was the technology of direct coal liquefaction by hydrogenation. I.G. Farben, which developed this technique, made considerable efforts to sell its hydrogenation technology to Japan. Around 1938, the company was vigorously trying to find a market among more than ten Japanese corporations, including its most important target, Ogura Sekiyu (Ogura Oil), which at the time was attempting to produce gasoline through the hydrogenation of light oil. Although these efforts persisted until the summer of 1939, they met with no success. The principal reason for this was the opposition of the Japanese navy, which was confident of developing its own hydrogenation technology (see Chapter 7). At this time Krupp, one of Germany’s major iron, steel, and machinery manufacturers, expressed interest in exporting to Japan its high-pressure reaction pipes (Hochdruckbehälter), the main piece of equipment used in the hydrogenation process. There were a number of enquiries from Japan regarding the purchase of Krupp’s high-pressure reaction pipes for hydrogenation purposes. Tables 4.1 and 4.2 give a breakdown of these. Although there are variations between the two tables, each clearly shows that there was a great deal of interest from Japan in Krupp’s highpressure reaction pipes. It should be pointed out, however, that not all the hydrogenation reaction pipes were for use in the production of synthetic oil. In the case of Toho Gas, for example, it has been verified that the reaction pipes were to be used for low-temperature tar hydrogenation. Nonetheless, all the pipes about which enquiries were made were hydrogenation reaction pipes. The sale of hydrogenation high-pressure reaction pipes was, however, Table 4.1 Enquiries from Japan regarding high-pressure reaction pipes (as of December 1938) Enquirer

Intermediary

Number of pipes

Date estimate submitted

Navy Manchurian Fuel Liquefaction Nissan Chemical Toho Gas

No entry No entry

30 24

No entry No entry

Okura Shoji No entry

11 15

Dec. 2, 1938 Dec. 2, 1938

Source: Untitled table, Historisches Archiv of Fried. Krupp GmbH (henceforth referred to as HA Krupp) WA 51/v 1071.

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Table 4.2 Enquiries from Japan regarding high-pressure reaction pipes, 1938 Enquirer

Intermediary

Number of pipes

Navy Ogura Oil Ogura Oil Manchurian Fuel Liquefaction Nissan Chemical Toho Gas

No entry I.G. Farben Lemke*

31 1 3

No entry No entry No entry

24 Several Several

Source: Hochdruckbehälter für Japan, HA Krupp WA 51/v 1071. Notes: Date inferred by the author. In Schwebende Geschäfte, HA Krupp WA 51/v 1071, a table entitled ‘Business Pending’ lists the following additional enquiries: an enquiry for several pipes by Manchurian Fuel Liquefaction made through Lemke; one for 2 or 3 pipes, also by Manchurian Fuel Liquefaction, but made through another representative of Krupp, Albert Thordsen; and an enquiry for 26 pipes by Showa Fertilizer made through Okura Shoji. The actual dates of the enquiries are not known. * In the original table, this was written as Nakamura, which is believed to refer to an employee of Krupp’s Japan representative, Walter Lemke, whose name was Nakamura.

already subject to the restrictions set forth by the Second Four-Year Plan. A document4 kept in Krupp’s archives notes: In May 1936 the Raw Materials Bureau held its first conference with the iron and steel corporations regarding the supply of high-pressure reaction pipes, deemed necessary within the framework of the Eighteen-Month Plan and the Four-Year Plan. This conference was based on the government edict on the construction of fuel production facilities aimed at reducing the import of oil supplies. The production capacity of the iron and steel corporations, including all possible reserve capacity, was to be reserved for the hydrogenation project provisionally until May 1940, and should the project be extended subsequently, until the end of 1942. Instructions were that any orders outside of this, the ones that might come into conflict with the hydrogenation project, could only be accepted if they received permission from the former Göring Bureau, presently the Bureau for Economic Consolidation. The Bureau for Economic Consolidation was the central organ for those in charge of the Four-Year Plan, who were all under the control of the strong man of the Nazi regime, Hermann Göring. Moreover, the aforementioned government edict seems to refer to Adolf Hitler’s order of April 4, 1936.5 At the end of September 1938, Krupp applied to the Bureau for Economic Consolidation for permission to export high-pressure reaction pipes to Japan. It planned to supply more than sixty-five pipes to the Japanese navy, Manshu Yuka Kogyo (Manchurian Fuel Liquefaction Industry), Ogura Oil, Toho Gas, and Tokyo Gas. The total worth of these pipes was 19.38 million reichsmarks, equivalent to 28

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million yen. On making the application, Krupp referred to the policy, laid down by the Ministry of Economic Affairs under the control of Hjalmar Schacht, of promoting exports for the purpose of acquiring foreign exchange. However, the application was refused on the grounds that priority was to be given to the accomplishment of the hydrogenation projects within the framework of the Four-Year Plan.6 Following its failure to obtain permission from the bureau, Krupp then made approaches to the Ministry of Economic Affairs. The head of the ministry’s Fifth Bureau, Gustav Schlotterer, and others demonstrated a favorable attitude to Krupp in view of their desire for the promotion of exports.7 The Ministry of Economic Affairs instructed Krupp to calculate what effect such exports would have on German domestic hydrogenation projects. The result of this calculation, which Krupp presented to the ministry, showed that, should one-third of the production capacity necessary to meet domestic demand be transferred to meet exports, the Krupp project that was to have been completed by the end of 1942 would not be completed until April 1944, meaning a delay of a year and three months.8 On receiving the report from Krupp, the Bureau for Economic Consolidation promised that it would reconsider whether or not to allow exports to Japan.9 Thus, Carl Krauch who, following Göring, was second-in-charge at the Four-Year Plan Bureau and incidentally also a manager of I.G. Farben, held discussions relating to this matter with the members of his department – Löb, von Hemskerck, and Körner. But the final decision remained the same. This was conveyed to Krupp via Schlotterer. Krupp, however, still held out hope that the final decision by Göring, who held top responsibility for the Four-Year Plan, would be in its favor.10 In the meantime, there had been enquiries for eleven reaction pipes from Nissan Kagaku Kogyo (Nissan Chemical Industries). At the same time, a report had come through pointing out that, were there a delay in Krupp’s acceptance of the orders from Japan, the Japanese could turn to the American market instead.11 2 Krupp’s attempt to win over I.G. Farben In view of the imminence of Göring’s final decision on the question, Schlotterer advised Krupp to tighten its cooperation with I.G. Farben.12 This was based on the fact that I.G. Farben, being in possession of synthetic oil technology, had considerable influence over the course of the Four-Year Plan. There had been repeated conflict, however, between Krupp and I.G. Farben regarding the export to Japan of high-pressure reaction pipes. In the autumn of 1937, I.G. Farben blamed the conflict on the activities of Walter Lemke, Krupp’s representative in Japan, regarding attempts to find a market in Japan for the rival hydrogenation process developed by the nationalized German mine

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Bergwerksgesellschaft Hibernia (HIAG).13 Moreover, in the summer of 1938, I.G. Farben further criticized Krupp’s representative for infringing on its own vested interests in the Japanese synthetic oil market. This antagonism was temporarily resolved in September of the same year, when representatives from Krupp, including Lemke, who had returned to Germany temporarily, visited I.G. Farben’s Ludwigshafen works; they apologized and gave an explanation of their actions.14 In accordance with the advice of the Ministry of Economic Affairs, on December 9, 1938 Krupp’s representatives contacted Matthias Pier, who was in charge of I.G. Farben’s synthetic oil division, and Sauer, manager of the Leuna works. Pier was an engineer who had been credited with the development of tar hydrogenation in 1924, and at this time he was the director of I.G. Farben’s high-pressure experimentation division. At the start of their discussions, Krupp’s representatives explained that the number of enquiries from abroad, and especially from Japan, had grown considerably. I.G. Farben’s men stated that they had been unaware of this situation. The Krupp representatives stated that they had not anticipated this response, because given the active involvement of I.G. Farben’s representative in the Japan project, they expected that I.G. Farben would have been even better informed than Krupp. However, Krupp’s team did state that the Japanese side must have avoided contacting I.G. Farben, which they thought was interested primarily in granting the license for the I.G. process, and must instead have hoped to acquire the expertise regarding the process by purchasing high-pressure reaction pipes directly from Krupp. I.G. Farben’s team thanked Krupp’s team for this explanation and reaffirmed the long-standing friendly relations between the two companies. In view of this outcome, Krupp’s team requested I.G. Farben’s cooperation, pointing out that the export of Krupp’s high-pressure reaction pipes would certainly shore up I.G. Farben’s machinery exports and, therefore, its profits as well. In response, Pier stated that I.G. Farben was ready to cooperate provided that a part of the license for the I.G. process was included in the export deals for the reaction pipes. Krupp immediately turned down this proposal. Pier then put forward another proposal. This called for the formation of an international cartel of firms doing business with Japan. More specifically, German, British, and American iron and steel corporations would make an agreement whereby they would refuse to supply reaction pipes directly to Japan, and would thus oblige Japan to purchase the pipes from either I.G. Farben or International Hydrogenation Engineering and Chemical (IHEC), an international joint venture holding the patents for hydrogenation processes in pool (see Chapter 7, section II, 1). This arrangement, Pier considered, would keep the export prices high enough to assure the iron and steel corporations of lucrative profits. Krupp’s team expressed misgivings about this proposal, saying that it would

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merely induce the Japanese to construct reaction pipes themselves. Pier pressed Krupp, stating that he had obtained a promise from Standard Oil (NJ) that it would join the proposed cartel if the German iron and steel corporations were in agreement.15 One factor underlying I.G. Farben’s proposal to form, together with British and American corporations, an international cartel for restricting exports to Japan was that the company had already successfully reaffirmed its relations with IHEC regarding the provision of hydrogenation technology to Japan (see Chapter 7, section II, 1).16 I.G. Farben was not opposed to the licensing of its I.G. process to Japan. Instead, the company was concentrating its efforts on exporting its technology and related equipment in as profitable a way as possible. It was thus bent on devising tactics that would be conducive to profitable exportation. 3 Göring’s decision While engaged in these efforts to gain the cooperation of I.G. Farben, Krupp received the news from Schlotterer of the Ministry of Economic Affairs that permission for the export of its high-pressure reaction pipes to Japan had been refused. Moreover, Krupp was given to understand that this decision had come from the top – from Göring himself. Krupp, however, persisted in its attempts to get Schlotterer to seek a reversal of the decision, indicating that the export terms were to have been very favorable for Krupp, with most of the cost paid in foreign currency concurrently with the shipment, and that the export was to have been on the basis of cooperation with I.G. Farben. However, Schlotterer replied that there was no prospect of a reversal of the decision. The reason for the refusal of permission was neither the terms of payment nor Krupp’s conflicts with I.G. Farben, but the guiding policy of the Nazi regime that gave absolute priority to the carrying out of the Four-Year Plan. Krupp was told that its production capacity, too, had to be totally devoted to the fulfillment of the plan.17 Rudolf Brinkmann, the vice-minister of the Ministry of Economic Affairs, sent a similar reply to Krupp’s Gruson works in Magdeburg, stating that the export of highpressure reaction pipes to Japan could be allowed only if it did not hinder the execution of the Four-Year Plan.18 As if to make doubly sure that this was understood, Obenaus of the Bureau for Economic Consolidation informed Krupp of the policy for the further advancement of the Four-Year Plan. Decided upon in discussions between Göring and Krauch, this policy called for the launching of what was to be known as the ‘Karinhall Plan,’ which was meant to promote production of synthetic oil within the framework of the Four-Year Plan itself.19

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4 The obvious futility of Krupp’s efforts Krupp continued to make every effort to export to Japan. As part of its attempts to influence the authorities, Krupp compiled a document giving a detailed account of the current situation. The document stated that exports to Japan, for which permission had not been given, would have totaled approximately 3.42 million reichsmarks. The total for exports awaiting approval was estimated at 19 million reichsmarks. Moreover, the terms of payment were extremely favorable (33 percent, 43 percent or 50 percent to be paid in advance, in pounds sterling, and the rest paid on receipt of shipping documents, etc.). Krupp indicated that these exports were to be carried out with the cooperation of I.G. Farben. If permission for the exports was not granted, the loss in foreign exchange would reach the level of 25–30 million reichsmarks. Krupp sent this document to the Ministry of Economic Affairs, the Bureau for Economic Consolidation, and the Supervisory Bureau for Iron and Steel (Überwachungsstelle für Eisen und Stahl). It is noteworthy that the company approached the Ministry of Economic Affairs again, despite the negative answer already given by vice-minister Brinkmann, and this time Krupp tried to make contact not with Schlotterer, the ministry contact with whom it had thus far been in touch, but rather with officials of higher standing, namely Brinkmann or von Hanneken.20 Additionally, Krupp sounded out the possibilities for active cooperation with I.G. Farben. This was done in response to a request made by Lemke, Krupp’s representative in Japan, whose attempt to respond to an enquiry from Manchurian Fuel Liquefaction was being impeded by lack of cooperation from H. Ahrens & Co. Nachf., I.G. Farben’s representative in Japan.21 On receiving Lemke’s request, Krupp’s head office made a request for cooperation to I.G. Farben.22 However, there was now no reason for I.G. Farben to give a positive answer to this23 because, as previously stated, I.G. Farben placed the utmost importance on the income it could receive from licensing its hydrogenation method, and thus took a position of firm disapproval of any attempts by Krupp to independently export its high-pressure reaction pipes. Krupp’s head office, however, still held to the hope that the activities of its representative in Japan would result in the desired cooperation.24 Worthy of attention in this connection is the detailed report on the hydrogenation projects in Japan and Manchuria that Lemke sent to the head office in April 1939. The main points of his analysis were as follows: 1. Most production methods were being independently developed in Japan. Even though these were nothing but poor imitations of the I.G. process or the FischerTropsch synthetic process, the imitation methods were adopted as second-best substitutes because the license fee for the I.G. process was considered prohibitively high. 2. Negotiations for the introduction of the I.G. technology had yielded no results.

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The reason for this might be ascribed to the restrictions imposed by IHEC, but considering that virtually complete charge over the negotiations had been given by IHEC to I.G. Farben, the costly license fee for the I.G. process should be regarded as the main reason for the failure. 3. Taking into account the drive and skill of the Japanese, they would probably succeed in developing their own technology – if not very soon, then in a period of five–ten years. Table 4.3 Enquiries from Japan for which permission to export was refused (as of January 25, 1941) Year

Enquirer or intermediary

1937

Mitsubishi Shoji Mitsubishi Shoji Mitsubishi Shoji Mitsubishi Shoji Mitsubishi Shoji Okura Shoji Mitsubishi Shoji Manchurian Fuel Liquefaction Japanese Navy Ogura Oil Toho Gas Uhde Sumitomo Chemical I.G. Farben

1938

1939

Uhde Nissho

1940–2

Mitsubishi Shoji Mitsubishi Shoji Mitsubishi Shoji Mitsubishi Shoji Mitsubishi Shoji Takata Shokai Mitsubishi Shoji Mitsubishi Shoji Japan Nitrogenous Fertilizer Japan Nitrogenous Fertilizer Lemke Lemke

Item

Number of pipes

Total in reichsmarks

Boiler drum Boiler drum Boiler drum Boiler drum Boiler drum Boiler drum Boiler drum Reaction pipe*

1 3 3 3 1 4 1 24

40000 120000 140000 96000 17000 150000 33540 10000000

Reaction pipe* Reaction pipe* Reaction pipe* Reaction vessel Conversion plant High-pressure reaction pipe* Reaction vessel High-pressure reaction pipe* Reaction drum Reaction drum Reaction drum Reaction drum Reaction drum Reaction vessel Boiler drum Reaction vessel High-pressure reaction pipe* High-pressure reaction pipe* High-pressure reaction pipe* Nitrogen reaction pipe*

30 10 5 1 1 6

8000000 800000 750000 61250 42360 444600

1 8

89000 3000000

3 9 6 6 9 3 4 22

838800 144000 132500 174510 198150 112500 196000 1920700

6

2722000

12

4020222

4

414200

12

1242600

Sources: Aufstellung über abgelehnte Auslandsgeschäfte; Neue Auslandsprojekte, die vorsichtlich auch in vollem Umfange abgelehnt werden müssen, HA Krupp WA 51/v 1071. Also used were similar tables that included figures for domestic enquiries (Aufstellung der Anfragen auf geschmiedete Druckbehälter, January 24 1941, HA Krupp WA 51/v 1071; and Anfragen auf Hohlkörpern, July 27 1938, HA Krupp WA 51/v 1071). Notes: The enquiries made in 1940 were deemed certain not to receive permission for export. * Under these items are included only those pipes that are believed to have been for use in hydrogenation.

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Thus, Lemke’s report concluded, as far as Krupp was concerned, Japan at that time offered a very promising market. Although the first and second points in this analysis failed to take into account the negative attitude of the Japanese navy to the introduction of the I.G. technology, these points themselves were not entirely wide of the mark. The expectation that Japan would develop its own technology, however, proved unrealistic, as it greatly overestimated the level of technology in Japan. The conclusion, too, proved to be unduly optimistic. But Lemke’s biggest error of judgment was his failure to take proper account of the attitude of the German authorities.25 Thus, all Krupp’s efforts were in vain. Moreover, other requests for permission to export were refused, one after the other (see Table 4.3). In this table, reaction pipes for the production of synthetic ammonia are included, but the pipes for hydrogenation purposes take up most of the financial total. It is immediately clear that the unit price for the hydrogenation high-pressure reaction pipes (marked with an asterisk) is much higher than that for the synthetic ammonia reaction pipes. Krupp received a total of fifty-seven enquiries from abroad, worth 37.71 million reichsmarks, of which twenty-eight were from Japan, totaling 36.82 million reichsmarks. Thus, 49 percent of the enquiries, comprising 98 percent of the total sum, were from Japan. Or, if the year 1940 is taken alone, all six enquiries received during that year were from Japan.26 Thus Japan was clearly the most potentially lucrative export market for Krupp. In fact, the documents in the Krupp company archives pertaining to high-pressure reaction pipes are almost all related to Japan.27 Ultimately, however, although Krupp received many enquiries from Japan for its high-pressure reaction pipes, permission for export was in all cases refused by the German authorities. II ACTION TAKEN BY OSHIMAOF IMPERIAL FUEL, AND KRUPPAND I.G. FARBEN’S RESPONSE 1 The economic and technological aspects of the Tripartite Pact With the signing of the German–Soviet Non-aggression Pact on August 23, 1939, relations between Japanese and German underwent a cataclysmic change. On August 25, the Hiranuma cabinet decided to suspend negotiations on the Tripartite Pact. Then, on September 18, the Japanese Ambassador to Germany, Oshima Hiroshi, who supported a strengthening of the Japanese–German axis, made a representation to the German Government, protesting that Germany had violated the Anti-Comintern Pact by signing the Non-aggression Pact with the Soviet Union. It took approximately one year for the wind to blow once more in a direction favorable to the strengthening of the Tokyo–Berlin axis. Finally, on September 27, 1940, the Tripartite Pact was signed by Japan, Germany, and Italy.

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This pact was a political alliance, having no concrete provisions for military cooperation. However, its economic and technological aspects deserve examination. The hopes of the Japanese side for economic and technological cooperation with Germany were made known in the ‘Proposal for the Course to Be Adopted in the Negotiations for the Formation of a Military Alliance,’ which was presented at a meeting of the four ministers on September 6, three weeks before the signing of the pact. The proposal expressly stated that the ‘technological assistance and supply of airplanes, machinery, and chemical products from Germany and Italy to the Japanese Empire as this becomes necessary’ should constitute one of the ‘basic conditions indispensable for strengthening the cooperation among Japan, Germany, and Italy.’ It called also for the ‘conclusion of an economic cooperation and trade agreement and a payment agreement’ among the three countries.28 The Tripartite Pact itself proclaimed that in order to build and maintain ‘a new order’ in East Asia and Europe, the three parties should ‘mutually support and cooperate with each other’ (from the Preamble), and they should ‘commit themselves to cooperating with regard to efforts undertaken on the basis of the aforementioned principles’ (Article 3). To be sure, these were only abstract propositions. However, in the secret documents exchanged at the time of the signing of the pact, the Germans promised, obviously in response to the wishes of the Japanese, that they would ‘utilize as far as possible our industrial capacity and other technical and material resources for the benefit of Japan.’29 It is important to keep in mind here the circumstances that surrounded Japanese– German economic relations at the time. The Commerce and Navigation Treaty between the two countries, signed in July 1927, had come up for renewal, but the signing of a new treaty, scheduled for October 1939, had been delayed by the outbreak of the war in Europe, which caused a radical change in the prerequisites for its conclusion. It is not surprising, then, that the Japanese entertained great hopes that the conclusion of the Tripartite Pact would facilitate the conclusion of the proposed treaty and expand trade relations.30 Thus, the provisions of the Tripartite Pact concerning technical cooperation reflected mainly the aspirations of the Japanese – more specifically their desire to secure supplies of oil from South-East Asia and to gain access to Germany’s synthetic oil technology. When, on the day before the signing of the Tripartite Pact, the Privy Council met to deliberate on the pact’s significance for Japan, the director general of the Planning Agency, Hoshino Naoki, touched specifically on the question of natural oil resources. He stated that it was necessary to ensure petroleum supplies as quickly as possible from the Dutch East Indies or North Sakhalin, and that this had already been in dispute in the recent discussions with the German side. Moreover, he asked the council to understand that discussions regarding the peaceful acquisition of oil from the Dutch East Indies were already underway.31 This seems to

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show that Japan’s interest in the oil resources of the Dutch East Indies naturally went hand-in-hand with its interest in acquiring synthetic oil technology and production equipment.32 It should be pointed out in this connection that Foreign Minister Matsuoka Yosuke, who played a decisive role in the conclusion of the Tripartite Pact, had been in favor of the introduction of synthetic oil technology from I.G. Farben during his time as president of South Manchurian Railway. Even though his display of interest in synthetic oil technology might have been no more than the habitual showing off of his empty oratorical skills, it seems certain that he did not have much faith in Japan’s own technology (see Chapter 7, section II, 1).33 But, in the final analysis, there is no evidence as yet to support the conjecture that within his efforts with regard to the Tripartite Pact lurked the shadowy motive of the introduction of synthetic oil technology to Japan. 2 The visit to Germany by Oshima At the beginning of 1941, Oshima Yoshikiyo, a director of Imperial Fuel Industry, made a visit to Germany. The company was a state corporation that had been set up in January 1938 by Imperial Fuel Industry Company Law for the purpose of promoting the synthetic fuel industry. Synthetic fuel production was to be entrusted to private corporations, but the task of Imperial Fuel Industry was to give support to those companies by, among other measures, guaranteeing capital investment and granting subsidies. About half of the 700 million yen necessary for the Seven-Year Plan for the promotion of synthetic fuel production by these companies was to be financed by Imperial Fuel Industry. The company itself was to procure the funds on the basis of subscriptions to its stocks by the Government and large enterprises, the flotation of bonds, and government subsidies for dividend payments. At the end of 1944, it took direct charge of the synthetic oil production operations of the private corporations. In a word, Imperial Fuel Industry was at the helm of the implementation of the synthetic oil production project in Japan.34 I.G. Farben, which at the time was making strenuous efforts to develop a market for its hydrogenation technology in Japan, regarded the state corporation as representing a formidably powerful foe, based on its alliance with the German iron and steel industries in the Ruhr district (with its Fischer-Tropsch synthetic process), the Japanese navy, and the Mitsui zaibatsu. In I.G. Farben’s view, therefore, Imperial Fuel Industry constituted the biggest obstacle to its attempt to sell its technology and equipment to Ogura Oil. These observations by I.G. Farben were not necessarily accurate, since Imperial Fuel Industry had the Mitsubishi zaibatsu among its private investors; and not only the navy, but also the army had its officers in active service on loan to the company. Imperial Fuel Industry had no influence over the army and navy; nonetheless, through the allocation of its funds and the granting of various

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permits, the company certainly exercised a strong influence over the private companies (see Chapter 7, section II, 3).35 Oshima Yoshikiyo, deemed to have been one of the leading authorities on synthetic oil production in the Japanese academic community, had been on the board of directors of Imperial Fuel Industry since his retirement from the post of professor at the Faculty of Engineering, Tokyo Imperial University, in June 1938.36 The aim of his visit to Germany in 1941 was probably to make first-hand observations of the synthetic oil production plants and technology there. Foreign Minister Matsuoka’s visit followed a few weeks later, but it is not clear that the two were connected. However, it is not difficult to conjecture the basic purpose of Oshima’s visit. As a director of Imperial Fuel Industry who was fully aware of the need for high-pressure reaction pipes in Japan, he must have intended to make approaches to German corporations and the German authorities to ask for their cooperation in supplying these pipes to his company. Although his visit at the start of 1941 occurred just a few months after the signing of the Tripartite Pact, Berlin had launched an action that would shake Japanese–German relations once again. On December 18, 1940, Hitler had given the orders that preparations for Operation Barbarossa against the Soviet Union were to be completed by May 1941. On March 5, Hitler issued a two-pronged directive regarding cooperation with Japan, instructing his subordinates to encourage the Japanese to make assaults on Singapore, on the one hand, and to keep Operation Barbarossa a secret from the Japanese, on the other. Foreign Minister Matsuoka, who had already set out on his tour of Germany and Italy, arrived in Berlin on March 26. In discussions held there with Hitler and Joachim von Ribbentrop, Matsuoka intended to discuss the Russian question, but the Germans showed an almost complete lack of interest, and instead strongly urged the Japanese to join them in declaring war on Britain.37 Japanese and German political intentions began to diverge once again. With the signing on April 13 of the Non-aggression Pact between Japan and the Soviet Union, and with the formal launching on April 16 of Japanese–US negotiations based on the Japanese–US Mutual Consent Proposal, Matsuoka’s diplomacy began to show what were to become unbridgable inconsistencies. And when three million German troops opened fire on the Soviet forces along the vast stretch of front extending from the Baltic to the Black Sea, and launched a full-scale offensive on the Soviet Union on June 23, political relations between Japan and Germany threatened imminent collapse. The timing of Oshima’s stay in Germany, which came shortly after the conclusion of the Tripartite Pact, must have been comparatively favorable for the promotion of economic and technological cooperation between the two countries. As this was prior to the outbreak of war between Germany and the Soviet Union, the transportation of German machinery and equipment across Siberia was still a possibility. He was thus given a brief chance.

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3 Oshima’s approach to I.G. Farben At the start of February 1941, Oshima made his first approach to I.G. Farben. It is highly likely that Mitsubishi Shoji’s Berlin Office (Mitsubishi Shoji Kaisha GmbH) mediated this contact; Oshima is actually known to have met with a German employee of Mitsubishi Shoji at that time.38 Mitsubishi Shoji was by far the most active among the Japanese trading firms operating in Germany at that time (see Chapter 3, section I, 2), and its activities in the area of synthetic oil technology were no exception. It was thus only natural that Oshima should first contact Mitsubishi Shoji upon his arrival in Germany. Business opportunities for Mitsubishi Shoji had become scarce since the outbreak of war in Europe, because of the risks of war and the shortage of ocean carriers. The company’s hopes must have risen that a new business opportunity would come out of contact with Oshima, who was a director of Imperial Fuel Industry as well as an authority on synthetic oil production in Japan.39 This must also have been the case as far as Okura Shoji (Okura Trading) and Mitsui Bussan (Mitsui & Co.), which were to contact Oshima following Mitsubishi Shoji, were concerned. On February 6, Oshima had discussions with Sauer, manager of I.G. Farben’s Leuna factory. Members of the German military were present at the meeting. Oshima stated his company’s intention of purchasing equipment for the manufacture of synthetic oil, most especially high-pressure reaction pipes. As I.G. Farben had been greatly interested in licensing its hydrogenation process and exporting equipment to Japan, Sauer naturally showed an interest in Oshima’s offer. One fact of importance at this point was that I.G. Farben was interested more in licensing than in exporting its own plant or mediating the exports for other companies, because it found licensing far more lucrative. I.G. Farben, therefore, sounded out Oshima on whether his company was interested in introducing the technology for synthetic oil production. However, Oshima was unable to give a definite answer.40 There is nothing strange about Oshima’s failure to give a reply. To begin with, he was not entrusted with the authority to do so. As stated earlier, the biggest obstruction to the introduction of the I.G. method was the stubborn opposition of the Japanese navy, with its insistence on the adoption of an alternative process that it was developing. Oshima had come to Germany without straightening out this difference of opinion with the navy. It is highly plausible that Oshima formulated his purchase offer in haste as a result of his consultations with Japanese trading companies in Germany. It should be pointed out, on the other hand, that I.G. Farben’s optimism that Japan would prove to be a fruitful market was also undergoing a subtle change. The person in I.G. Farben who occupied the most important position with regard to relations with Japan was Heinrich Bütefisch. As manager of the Leuna factory,

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Bütefisch gave the instructions regarding sales to Japan and took part in the negotiations with IHEC. He is believed to have met with Oshima at this time. A Krupp employee, who contacted Bütefisch with regard to Oshima’s visit, made the following observation about the change in I.G. Farben’s attitude: I.G. Farben’s participation and use of the I.G. process in Japan’s hydrogenation projects appears once again to be urgently requested by Japan. This is probably because of the necessity for Japan to secure stable fuel supplies as quickly as possible. I.G. Farben, however, in complete contrast to its previous attitude, is now showing an almost total loss of interest in this (owing to its lack of specialists and other reasons).41 As previously stated (see section I, 1 of this chapter), I.G. Farben until this time had been vigorously pursuing the licensing of its method, and had shown a willingness to carry out exports of machinery, even though it had been very particular about the price quotations. Ironically, however, I.G. Farben’s enthusiasm began to wane just at the time when the Japanese, in particular the army, began to show renewed interest in the I.G. process against the background of the stepping up of the US restrictions on oil exports to Japan, which was to culminate in the announcement, in August 1941, of a complete oil embargo. Several factors seem to have prompted this change in I.G. Farben’s stance. One was that all its efforts thus far to find a market in Japan had proved unsuccessful. Another was that British and US companies, through IHEC, had been stepping up their efforts to hold I.G. Farben in check. IHEC had begun to take a clearly negative stance not only with regard to I.G. Farben’s exports of plant but also its provision of licenses. A further factor unfavorable to the provision of licenses was emerging in Germany: the growth in German domestic demand, coupled with the tightening of regulations by the authorities. A Krupp internal document drew attention to the new situation as follows: There has been a new development in the past few days. This means essentially that all export shipments must now be held within the limitations set in terms of total amounts, and all negotiations with the Japanese side must be entrusted to the Ministry of Economic Affairs, which will carry out the negotiations abiding by the principle of requesting some compensation from Japan in return for any provisions from Germany.42 In the light of the tightened regulations, I.G. Farben’s Bütefisch considered that he should make no concession to Japan without first contacting the Ministry of Economic Affairs, and he advised Krupp to that effect. And Krupp, for its own part, was seeing things in the same way.43 Moreover, Bütefisch went so far as to advise Krupp to be cautious in its dealing with Oshima. Bütefisch conjectured that Oshima’s aim was to obtain as much technical

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data as possible. Given the haphazard way Oshima prepared his enquiries for orders, including orders from Japan Nitrogenous Fertilizer, which had no intention of introducing the I.G. process, his supposition seems fairly plausible.44 4 Oshima’s contact with Krupp Oshima next got in contact with Krupp through Okura Shoji’s Berlin representative (Okura Trading, Ltd, General-Agentur Berlin). In disregard of I.G. Farben’s warning, Krupp enthusiastically explored the possibility of making a breakthrough in its attempts at exporting high-pressure reaction pipes to Japan through Oshima. Talks were held at Okura Shoji’s Berlin office with two of Okura Shoji’s employees attending. Oshima expressed the wish to purchase 22–24 large reaction pipes and 50 small pipes, and enquired as to price and other conditions. According to Oshima, the companies wishing to place orders were: • • • •

Karafuto Jinzo Sekiyu (Sakhalin Synthetic Oil); Kitsurin Jinzo Sekiyu (Jilin Synthetic Oil); Ube Chisso Kogyo (Ube Nitrogen Industry); Chosen Jinzo Sekiyu (Korean Synthetic Oil, a subsidiary of Nippon Chisso Hiryo – Japan Nitrogenous Fertilizer); • Toa Nenryo Kogyo (Toa Fuel Industry); and • Nissan Ekitai Nenryo (Nissan Liquid Fuel). The orders from the first three were to be handled by Mitsubishi Shoji; Korean Synthetic Oil’s by Lemke, Krupp’s representative in Japan; and Toa Fuel Industry’s by Lemke and Mitsui Bussan. Oshima requested delivery as soon as possible. In its reply, Krupp stated that the acceptance of the orders and prompt delivery would be dependent on the disposition of the German authorities. What should be noted about the talks is the wording of Oshima’s enquiry of the price. He put his question: ‘How much per ton?’ Why Krupp was stunned at the wording of his question will be explained later. Apart from Krupp, Oshima planned to or in fact did contact Dortmund und HörderHüttenwesen and Ruhrstahl.45 It is clear from the above that Krupp demonstrated considerably more enthusiasm toward Oshima than did I.G. Farben. 5 I.G. Farben’s new proposal to Krupp The point has been made already (see section II, 3) that from the start I.G. Farben was interested more in licensing its process than in exporting equipment to Japan. Its tactics toward Japan followed this same course. It was in line with these tactics that the firm requested Krupp and other machinery manufacturers to refrain from providing estimates to Japan for high-pressure reaction pipes without first referring the orders

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to itself. It hoped that with this request pressure could be brought to bear on these manufacturers for all their equipment orders to be made through I.G. Farben, enabling it to conclude export contracts at high prices. It is not surprising that the tactics were found unacceptable by the machinery manufacturers. However favorable the export terms they might be able to obtain, they detested the arrangement whereby all the orders should be handled by I.G. Farben, since this would put the latter in a very favorable position regarding the charging of commission fees. By this time, however, I.G. Farben had already given up its attempts to pursue its tactics, and had become tolerant of manufacturers giving quotations and even supplying machinery independently. This seems to have been due to the tightening of IHEC’s restrictions on technological exports, which must have forced I.G. Farben to abandon its earlier tactics of combining the export of machinery with licensing of the I.G. process. It should be kept in mind, however, that I.G. Farben had not completely abandoned its interest in the export of equipment by iron, steel, and machinery manufacturers. Indeed, it hoped to find a profitable opportunity by devising new tactics. Following Krupp’s contact with Oshima, I.G. Farben’s Bütefisch presented a new proposal to Krupp: Some difficulty appears to have arisen regarding the payment of the license fee or the cost of the necessary technical expertise. The subcontracting firms should start quoting the price inclusive of the amounts comparable to the fees and costs of the licenses and know-how they would provide afterwards, with, for instance, such additional fees and costs related to reaction pipes being charged in advance by Krupp, those related to steel tubes for reaction pipes by MannesmannröhrenWerke AG, and those related to compressors by the other subcontractors concerned.46 Bütefisch’s pretext was that, with this pricing method, the Japanese attempts to reduce the purchase price by acquiring licenses and purchasing equipment from each individual manufacturer could be foiled; that is, the German manufacturers could export their goods at higher prices.47 This proposal meant that I.G. Farben, which had lost the possibility of licensing its process, hoped to mediate in the exports to Japan by Krupp and others, and so earn revenue in the form of export-handling fees. This proposal was actually based on a suggestion by Otto Ruhl, the chief engineer based in Tokyo: The Japanese, for instance, the navy, usually resist the idea of paying license fees, obviously as a matter of pride. While this is true, they also seem ready to pay higher prices for equipment if circumstances force them to do so.48

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Krupp was against this proposal by I.G. Farben. It had already given an estimate to the Japanese side, quoting the prices at a reasonably high level. The company was concerned that accepting I.G. Farben’s proposed pricing method would mean allowing its own expected profits to be swallowed by I.G. Farben. Krupp insisted that it was not satisfied with being a mere subcontractor to I.G. Farben.49 With the lack of interest in its attempt to treat Krupp and other iron, steel, and machinery manufacturers as subcontractors, I.G. Farben lost all enthusiasm to continue discussions with Oshima. 6 Krupp’s response to Oshima In contrast, Krupp, bent on cultivating an export market in Japan, pursued its discussions with Oshima. While doing so, however, Krupp, despite its interest in the Japanese market, was harboring increasing doubts about the limits of Oshima’s authority, partly because of the warning from I.G. Farben. Among the enquiries presented by Oshima was Japan Nitrogenous Fertilizer’s possible order of twelve reaction pipes (1,760-mm caliber and 14.5 meters long). However, Lemke, Krupp’s representative in Japan, had wired a telegram to Krupp’s head office stating that Japan Nitrogenous Fertilizer had expressed an intention to place an order for the twelve reaction pipes directly with Krupp. This was an obvious contradiction, and it made Krupp suspicious about Oshima’s authority.50 The contradiction was later cleared when it was confirmed that the twelve reaction pipes to be ordered by the company were for use in the production of ammonium sulfate, and were thus other than those enquired about by Oshima. Apart from this, Krupp received information from another source suggesting that the navy had plans to carry out hydrogenation using a different method. Oshima’s enquiries did not seem to fit in with this plan of the navy, and, from his statement, Krupp concluded that Oshima actually had no authority over the proposed orders from the navy. This judgment was in fact correct.51 However, Krupp made an earnest response to Oshima’s enquires, with the intention of obtaining the orders. By around February 20, Oshima had managed to meet also with Carl Krauch, who was second-in-charge of the Four-Year Plan. Krauch had been chairman of I.G. Farben’s supervisory board since 1940, but it seems safe to assume that he met with Oshima in his Four-Year Plan capacity, because I.G. Farben itself had already lost interest in Oshima’s enquiries. At this meeting, Kranch spoke frankly to Oshima regarding the prospects of the supply of reaction pipes to Japan. He stated that priority would have to be given to meeting Germany’s domestic demand, but that, from the middle of the following year (1942), it would be possible somehow to supply 2 reaction pipes per month to Japan, or a total of 36 by the end of 1943.52 Such was the content of Krauch’s offer, as

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understood by Obenaus of the Bureau for Economic Consolidation, who was also present at the meeting. Oshima’s grasp of Krauch’s statement differed slightly in the particulars. Oshima thought that a promise had been made for the provision of 24 large and 20 small reaction pipes, or a total of 44, for the years 1942–3.53 Whatever the details of the commitment given by Krauch, there is no denying that it was made largely as lip-service. Germany was in the midst of a Europe-wide war, and, moreover, the tasks of meeting Hitler’s order and of completing the preparation for Operation Barbarossa against the Soviet Union by May 1941 took precedence over everything else. Producing and storing as much synthetic oil as possible was a prerequisite for the accomplishment of the Blitzkrieg. And the FourYear Plan itself, with its emphasis on the concentration of the essentials for the production of synthetic oil and other war supplies, was well-adapted to the strategy of the Blitzkrieg.54 Under such circumstances, any commitment made to provide goods of strategic importance more than one year later should have been construed as nothing more than an airy promise reflecting a considerable degree of wishful thinking. Oshima, however, appeared to have been encouraged by Krauch’s words. He then proceeded to contact Krupp again, but this time he did so, not through Mitsubishi Shoji or Okura Shoji, but through Mitsui Bussan. By around February 20, Deutsche Mitsui Bussan AG had passed on to Krupp an enquiry from Toa Fuel Industry. On March 11, Oshima, accompanied by two German employees of Mitsui Bussan, visited Krupp. Oshima handed over specifications for 119 reaction pipes, including 24 large pipes (1,760-mm caliber) for Jilin Synthetic Oil, 54 small pipes (900-mm caliber) for various uses, and 41 small pipes for the navy. The number of pipes was far greater than that promised by Krauch. What is more, Oshima enquired about the price in terms of ‘price per ton,’ just as he did in his earlier discussions with Krupp. In reply, Krupp had to give a detailed explanation of how, in quoting the price of a piece of sophisticated equipment like a high-pressure reaction pipe, it was customary to quote on an item-by-item basis and not on a gross tonnage basis. To be sure, Oshima’s enquiries about so many as 119 reaction pipes and his extraordinary way of enquiring about price were indicative of how urgent was the Japanese need of German-manufactured high-pressure reaction pipes. At the same time, his unusual mode of enquiry shows that Oshima, despite his credentials as an expert in Japan on synthetic oil, was a rank amateur in terms of doing business. In other words, both the Japanese trading companies, which were pressed by declining war-time business opportunities, and Krupp, which was desirous of developing an export market in Japan, were making fools of themselves by pinning their hopes on an amateur. Incidentally, Krupp stated that all the German manufacturers were preparing to handle their total exports to Japan through a single outlet, and proposed that the three Japanese trading firms should also establish one

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common entity. The Japanese firms replied that they were already examining the possibilities. Thus, cooperation between the two sides was planned, but did not actually come to fruition.55 Following this, Krupp began to prepare estimates for presentation in response to Oshima’s enquiries. It found, however, that the most serious obstacle to completing the export deals lay not in discussions over price with Japan, but in the longstanding task of talking the German authorities into granting permission for the export. 7 Negotiations between Krupp and the German authorities Krupp continued to try to influence Krauch, who had made the promise to Oshima regarding the supply of high-pressure reaction pipes to Japan. However, in April 1941, Obenaus, Krauch’s subordinate in the Bureau for Economic Consolidation, gave notice that there was no hope of the supply of the reaction pipes to Japan enquired about by Oshima starting before the middle of 1943, and, moreover, that the Ministry of Economic Affairs had confirmed this.56 Krupp next made several approaches to Obenaus, but, as may be expected, less earnestly than before. In the middle of June, Obenaus again declared that the supply of reaction pipes to Japan before the middle of 1943 was out of the question. He reasoned that, given Göring’s orders, which had to be fulfilled by all means, there was no chance that the production plan for meeting Germany’s own requirements would start easing before that time. Obenaus stated further: Even for the period beyond mid-1943 the Reich authorities cannot tell for sure whether they will be able to meet orders from abroad or not. This is because there is every likelihood that the need for high-pressure reaction pipes will continue to grow even greater beyond mid-1943, and this should be duly taken into account. This need is expected to spread, within the greater German Reich, to additional hydrogenation plants and equipment, the construction of plants and equipment for the manufacture of all high-quality fuels, the chemical industry, and especially the oil and fat industry. It will also extend to standby equipment for hydrogenation, and equipment for a new 10,000-barometric-pressure hydrogenation process. The need for reaction pipes will also extend to equipment installed in greater Europe, for instance in Spain and Syria, and, whatever the case, some degree of necessity will arise in Eastern Europe, or at least in the Balkans and Italy. And meeting these needs will have to be given priority over supplies to Japan.57 As the dream of the great Nazi economic sphere grew, Japan was bound to become peripheral. Obenaus added:

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Despite this, Professor Krauch in his meeting with Professor Oshima has certainly promised that Germany will do its best to supply some reaction pipes to Japan even prior to mid-1943. But, needless to say, Mr Oshima should know that such a word of promise carries no real meaning, that it is just a sort of diplomatic language.58 This was well put indeed! His words laid bare the realities of the economic and technological cooperation within the Tripartite Pact. On June 22, war broke out between Germany and the Soviet Union, thereby making transportation via Siberia an impossibility. The supply of high-pressure reaction pipes to Japan became totally unrealistic. The next day, Krupp sent a letter to Krauch, informing him of its decision to give up its pending plan to export machinery to Japan. By that time, Krauch, with the consent of the Ministry of Economic Affairs and the Export Association of the Special Group for High-Quality Steel, made arrangements that would bring the handling of matters concerning applications for supplies to Japan under the centralized control of his own department, at least for the time being.59 Enquiries continued to come in from Japan. For example, in October of the following year, 1942, the navy enquired through Mitsui Bussan about high-pressure reaction pipes and oil-refining equipment. The army followed with an enquiry for fourteen high-pressure reaction pipes through Okura Shoji.60 However, given the conditions of war, under which the delivery of machinery had become impossible, these business discussions could be but pure speculation. Licensing was a possibility still, but it was not until January 1945 that an actual contract for technology transfer was concluded between the army and I.G. Farben (see Chapter 7, section IV, 2). III CONCLUSION Germany’s synthetic oil industry had been assured of a secure market and profit by the Four-Year Plan of 1936 when the Japanese industry finally got underway a year later through the launching of the Seven-Year Plan for the Promotion of Production of Synthetic Oil. In each case, synthetic oil production was planned to be undertaken by private industry under the auspices of a government plan. During the period from 1937 up until the summer of 1939, however, I.G. Farben was experiencing difficulties in licensing its I.G. process to Japan, while Krupp actively tried to export high-pressure reaction pipes and other equipment to Japan. In fact, Krupp received a large number of enquiries from the army, the navy, and private corporations. But Krupp was unable to obtain permission from the German authorities, which were attaching top priority to the accomplishment of the Four-Year Plan. A paradoxical relationship thus existed between the Japanese and German synthetic oil industries regarding the acquisition of equipment.

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With the signing of the Tripartite Pact in September 1940, however, hopes rose in Japan for progress in economic and technological cooperation with Germany. Central to such cooperation was the introduction of synthetic oil technology and the importation of equipment for synthetic oil production. At the start of 1941, Oshima Yoshikiyo, a director of Imperial Fuel Industry, made use of his visit to Germany to contact Japanese trading companies in Berlin, namely Mitsubishi Shoji, Okura Shoji, and Mitsui Bussan, and made considerable efforts with regard to the purchase of equipment for the production of synthetic oil. With the support of the trading companies, Oshima gathered a number of enquiries from Japan, with which he made approaches to I.G. Farben and Krupp. His interest lay in the purchase of high-pressure reaction pipes and other equipment. Of the two German firms, it was Krupp, with its interest in exporting high-pressure reaction pipes to Japan, which responded the more vigorously to Oshima’s enquiries. I.G. Farben, for its part, tried to intervene in Krupp’s efforts to export. It did so in the hopes of finding a new profit-making opportunity, since its licensing activities elsewhere were being restricted by the international patents’ pool it had formed together with British and US companies. I.G. Farben and Krupp were thus at crosspurposes in their approaches to exporting to Japan, and their conflicting interests remained unresolved. The most serious obstacle to Krupp’s exports to Japan, however, was the negative stance taken by the German authorities, in particular, those in charge of the FourYear Plan. Even the conclusion of the Tripartite Pact did not result in cooperation between the German and Japanese synthetic oil production projects. The German Four-Year Plan throughout took priority over cooperation with Japan under the pact. Thus, Japan was unable to acquire the technology for the I.G. process (it was able only to introduce the Fischer-Tropsch synthetic process). Nor was it able to import high-pressure reaction pipes and other necessary equipment. Even after the formation of the Tripartite Pact, there was no fundamental change in this situation. Foreign Minister Matsuoka’s expectation that the Tripartite Pact would help stem the Japanese army’s expansion southward in search of oil sources ended, as is well known, in bitter disappointment.61 Similarly, the expectation of the economic and technological cooperation that would result from the Tripartite Pact was thoroughly dashed, especially as regards the development of the one industrial product indispensable for sustaining a war-time economy, namely synthetic oil. Thus, the Tripartite Pact proved to be an ‘ineffective alliance’62 or ‘hollow pact,’63 not only from the political and military viewpoints, but also from the economic and technological standpoints.

Part III Licensing strategy

5 Downstream transfer of the Krupp-Renn process

Since the middle of the nineteenth century, the name Krupp has been coterminous with enormous wealth as well as with leading-edge technology. Krupp subsidiaries and plants, and even Villa Hügel in the southern suburbs of Essen, have been visited by numerous business people, politicians, and military personnel from all over the world. Many of the visitors have come from Japan. The Historisches Archiv of Fried. Krupp GmbH has made a compilation of the lists of visitors from around 1900 until the 1950s; almost 1,500 of them were Japanese, who thus exceeded the number of British and American visitors.1 For Krupp, during the World Depression in the 1930s, Japan ranked alongside the Soviet Union in importance as an export market.2 It was from this time that the number of Japanese visitors began to increase. The numbers testify to the heightening of interest in Krupp’s advanced technology. Among the machinery and equipment that received attention and were in demand in the 1930s3 were: • • • •

strip mills for making band steel and steel tubing; all types of rolling equipment for use in steel manufacture; cement kilns, and high-pressure reaction pipes for hydrogenation.

I THE KRUPP-RENN PROCESS AND JAPANESE BUSINESSES One item of advanced technology that was of particular interest to the Japanese was the technique for treating low-grade ore for steel production. This technique involved processing materials like low-grade ore, powder ore, or iron sand – which are unsuitable for smelting furnace operations or else unprofitable – in a rotary kiln, resulting in the production of grain (granular iron). This technique, called KruppRennverfahren (the Krupp-Renn process), had been developed by Friedrich Johannsen, an engineer at the Fried. Krupp Gruson plant in Magdeburg. The word

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Renn, by the way, means ‘run,’ ‘have a race,’ and also ‘direct-iron manufacture.’ It seems to have been derived from the rotational action of the kiln. Krupp immediately set about turning the Renn process to commercial profit. At first it installed testing equipment in the Gruson plant in Magdeburg. Then, in 1934, it set up more extensive testing equipment in the Borbeck plant in Essen. The rotary kiln was 3.6 meters in diameter and 50 meters in length; it had a capacity for treating 250–300 tons of iron ore per day. In the same year, a kiln of the same size was built in Frankenstein in the Silesian region, but the purpose of this kiln was to treat lowgrade nickel ore, and it had a capacity for treating 80,000 tons a year. Later, between 1941–4, three kilns were built in Watenstedt-Salzgitter that were 4.2 meters by 70 meters in size with daily capacities of 500 tons; at the same time the nickel-treatment facilities at Frankenstein were expanded.4 What lay behind this growth in plant investment was the German Government’s policy of promoting the development of Germany’s domestic iron-ore resources under its autarky program. The Second Four-Year Plan, put into effect in 1936, was particularly significant in this respect, and the large-scale developments in lowgrade ore that were carried out in Salzgitter were subsidized under the terms of that plan.5 In addition to heavy investment of its own funds in equipment, Krupp was quite willing to grant patent licenses for the Renn technology to foreign countries – in other words, it was keen on licensing. The principal reason, no doubt, was the low prospect of exporting the finished product, granular iron. Obviously, problems of production costs and transport costs contributed too, but, from the start, products like grain did not readily lend themselves to trade. Since the increase in steel production through the processing of low-grade ore had been prompted by German Government policies aimed at economic autarky, it was only to be expected that the exporting of such products would be severely restricted. From the point of view of the countries importing steel, moreover, if they were going to import at all, they would be most likely to choose other, cheaper, products or, as happened in the case of Japan, embark on their own projects to treat low-grade ore. The same circumstances existed in the case of synthetic oil, whose production also was being increased at that time for reasons of autarky (see Chapter 7).6 A situation like this could also provide a good opportunity for licensing. Besides, licensing could also carry in its train the exportation of plant and equipment. We can safely assume, therefore, that a desire to go into licensing took firm root in the Krupp organization rather early on. Such a strategy would have had, in the eyes of the German Government, the additional argument in its favor of the acquistion of foreign currency. If demand for equipment investment had been high inside Germany, then constraints might have been placed by government authorities on the export of machinery, but even in such a case, as long as it was Krupp itself, the owner of the

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technology, that was trying to promote licensing, there probably would have been no substantial restraints put on such transactions. In this respect, the circumstances were very different from the case of the high-pressure reaction pipes for hydrogenation that Krupp similarly was keen to export to Japan, since, in this latter case, Krupp could not evade the direct and indirect constraints laid down by I.G. Farben, the owner of the technology (see Chapter 4). Thus, Krupp’s licensing strategy with regard to the Krupp-Renn process was firmly established at a relatively early stage. In one sense, it was inevitable, given the impossibility of the exporting of steel products; and, in another sense, it was economically desirable because licensing could involve the export of plants and equipment. On the other hand, in Japan after the First World War various attempts had been made to develop commercially viable techniques for treating low-grade ore. We know of such attempts, made at the Anzan Seitetsusho (Anshan Iron Works) of Minami Manshu Tetsudo (South Manchurian Railway), projects carried out in Korea by Mitsubishi Goshi (Mitsubishi Ltd), the headquarters of the Mitsubishi zaibatsu group, and Mitsubishi Seitetsu (Mitsubishi Iron and Steel), and the experiments in Iwate Prefecture carried out by Tokiwa Kosan (Tokiwa & Co.), an affiliate in the Kawasaki zaibatsu. Different experiments were being undertaken elsewhere as well. In all of these attempts, varying degrees of technical difficulties had to be overcome. These proved no deterrent, however, as interest in developing a commercially viable technology remained strong. In the midst of all the experimentation, word was received of Krupp’s success in developing a new production process. All eyes turned to the Johannsen article that appeared in the September 1934 issue of the German magazine Stahl und Eisen.7 Interest was heightened when Krupp applied, in 1935, to the Patent Bureau for a patent in Japan for ‘a method of obtaining iron in the form of grain in a rotary tube-shaped kiln.’ By 1940, Krupp had obtained 2 types of patent in Japan, and, in addition to these, there were 5 types of patent and one type of utility model under consideration.8 The parties that were the quickest to take notice were the various successors of those businesses mentioned above as being engaged in experimentation of their own. Two firms that quickly approached Krupp with a view to introducing the latest technology were Showa Seikosho (Showa Steel Works, the successor of Anshan Iron Works of the South Manchurian Railway) and Mitsubishi Kogyo (Mitsubishi Mining, now Mitsubishi Materials); through the intermediation of Mitsubishi Shoji (Mitsubishi Trading) the two firms formed a united front. The fact that even before a contract was concluded the Japanese side was allowed to visit the German plants, and to test the raw materials, is proof not only of the eagerness of Krupp but also of the extreme interest of the Japanese side. With moves afoot in Japan in the direction of economic autarky, as shown in the Manchurian Industry Development Five-Year Plan and the Production Expansion Plan, Showa Steel Works and Mitsubishi Mining

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NMRTKK

Chongjin

Kuji

Oeyama

Intermediary

Mitsubishi Shoji Mitsubishi Shoji

Anshan

Plant location

Oct. 1939

Feb. 1940

Sept. 1937

Sept. 1937

Date of contract

Dec. 1942

Dec. 1941

May 1939

Oct. 1939

Start of operations

Sources: See the works referred to in the notes accompanying the text. Notes: a Numbers in parentheses indicate the number of kilns purchased. b In December 1939 Kawasaki Shipyard changed its name to Kawasaki Heavy Industries. NMRTKK stands for Nichi Man Ren-ho Tokkyo Kyoho Kumiai (Japanese–Manchuria Association for the Joint Protection of the Renn-Process Patent). c In September 1942 Nippon Kako changed its name to Nippon Yakin Kogyo. d Actual figures: ferronickel production for the year 1943. Nippon Yakin Kogyo Kabushiki Kaisha 1985: 69. e This figure is the author’s conjecture.

Showa Steel Works Mitsubishi Mining Kawasaki Shipbuildingb Nippon Kakoc

Company

Table 5.1 Japanese companies granted licenses for the Krupp-Renn process, 1937–42

33000d

75000

150000

200000

Projected annual production (tons)

850e

850

3500

3500

License fee (in 1000-yen units)

1400 (2)

2300 (4)

3900 (6)

2600 (4)

Equipment purchasesa (1000-yen units)

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evinced a strong desire to conclude a contract. These moves, initiated by Godo Takuo, who had become Minister of Commerce and Industry after serving as head of Showa Steel Works, had the effect of bringing Krupp, which was being pressed by building projects inside Germany, to the contract-signing table. Showa Steel Works and Mitsubishi Mining, in turn, sub-licensed the technology to Kawasaki Zosensho (Kawasaki Shipbuilding, now Kawasaki Jukogyo – Kawasaki Heavy Industries – and Kawasaki Seitetsu – Kawasaki Steel), which had inherited the experimental facilities of the Kawasaki zaibatsu, and Nippon Kako (Japan Projectile, now Nippon Yakin Kogyo – Japan Metallurgical Industry), an affiliate of the new Mori business group. As can be seen in Table 5.1, the Japanese businesses that ultimately, either directly or indirectly, introduced the Krupp-Renn process were Showa Steel Works, Mitsubishi Mining, Kawasaki Shipbuilding, and Nippon Kako, which acquired the technology with a view to producing nickel. For the Krupp organization, this kind of licensing and plant exportation to Japan resulted in an enormous amount of licensing and export revenue. Licensing of the Krupp-Renn process to Japan took place before Krupp made similar deals with other countries. As things turned out, Krupp later signed licensing contracts only with Prager Eisen-Industrie Gesellschaft of Prague in 1941 and Société General de Elektro Metalurgia SA of Barcelona in 1942.9 In this respect, the case closely resembles that of I.G. Farben’s licensing of the Haber-Bosch process (see Chapter 6). Nevertheless, in respect of its status as technology covered by the autarky policy, it stands in stark contrast to the licensing failure experienced by I.G. Farben with its synthetic oil technology (see Chapter 7).10 II THE PLANT-CONSTRUCTION PROCESS 1 Showa Steel Works Showa Steel Works, which had entered into contracts with Krupp in September 1937 for the licensing of the Krupp-Renn process and the importation of machinery, followed this initiative up by sending four of its employees to Germany to negotiate the purchase of construction materials and to learn how to use the equipment. Friedrich Johannsen, the inventor of the Renn process, who had inspected Mitsubishi Mining’s Chongjin plant in Korea, also visited Anshan in mid-September 1939.11 In October 1939, the setting up of equipment was completed in Anshan, where iron ore of 35–40 percent grade was being mined. The four rotary kilns were 3.6 meters in diameter and 60 meters in length, or of a scale similar to that of the giant experimental kiln in Krupp’s Borbeck plant. A daily production capacity of 100–120 tons of grain was envisaged. It was planned to put the manufactured grain into blast furnaces to

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use as raw material for pig iron.12 Showa Steel went on, as shown in Table 5.1, to order an additional 6 kilns and with its 10 rotary kilns it planned an annual output of 200,000 tons of iron. In fact, however, the war in Europe prevented the 6 kilns from being delivered, and by 1941 only the 4 had been constructed. The result was that the company attained an annual production capacity of only 80,000 tons. The first firing of the No. 3 kiln took place in June 1940, and that of No. 4 kiln in August 1940. As can be seen from Table 5.2, which gives actual production figures, as of the end of 1942 the company still had not reached the 20,000-ton-per-year mark, its operating rate remaining below 20 percent.13 2 Mitsubishi Mining In 1935 Mitsubishi Mining took over the operations in Korea of Mitsubishi Goshi and Mitsubishi Steel. It signed a contract with Krupp in September 1937, at the same time as did Showa Steel Works. It then decided to build a new plant in Chongjin, Korea. Factors entering the decision included: • the proximity of Chongjin to the Musan mine, which was yielding magnetite with a 37–40 percent iron content; • access to the best harbor in northern Korea; and • the availability of anthracite coal deposits in Pyongan Namdo Province and Pyongan Bugdo Province. The estimated total cost was approximately 50 million yen. The designing of the plant was completed in 1937, and construction commenced the next year.14 The projected annual production capacity was 150,000 tons of granular iron. 15 Construction of the first kiln began in the same year; Krupp sent a chief engineer to Chongjin to oversee construction as well as the start of operations. In addition, Krupp sent two fitters, a foreman, and a bricklayer. In March 1939, the plant became an independent entity, the Chongjin Smelting Works. The firing of the No. 1 kiln occurred on May 4 of that year, described as follows: The long-awaited production of granular iron became a reality. But a ‘ring’ formed inside the kiln, so operations were halted on 19 July and, after waiting for the kiln to cool down, we removed the ‘ring’ from inside the kiln by using a rock drill. The No. 2 kiln was fired on 28 July and we continued operations until 13 September, when we had to close down the kiln because the draft could not be regulated. On 27 September repairs on the No. 1 kiln were finally finished and we fired it again.16 A conflict arose between Mitsubishi and the group of Krupp engineers over the causes of the technical problems and the methods used to remedy them. As a result, in response to a request from Mitsubishi, in late August of 1939, Krupp sent Johannsen, the inventor of the Renn process and the

11008 (14.6) 16239 (15.8) 18190 (16.0) Unknown Unknown Unknown

1940 1941 1942 1943 1944 1945

36242 (48.2) 53998 (52.5) 52520 (46.2) Unknown Unknown Unknown

Mitsubishi Mininga 526 (0.7) 2282 (2.2) 17355 (15.3) 23870 (55.2) 24260 (41.8) 6280 (29.8)

Kawasaki Heavy Industries 28018 (37.2) 32640 (31.7) 41182 (36.2) 43210 (100) 8044 (100) 21063 (100)

Total (Japan proper) 75268 (100) 102877 (100) 113797 (100) Unknown Unknown Unknown

Totalb

Sources: Shokosho (ed.) 1943; Shigencho (ed.) 1950. Notes: The figures for 1940–2 include bar iron as well as granular iron. Figures for 1943–5 include only granular iron. a According to Mitsubishi Kogyo Cement Kabushiki Kai ha (ed.) 1976: 343, output in 1942 was 56,120 tons, and it stayed above the 50,000-ton level every year until 1945. b This column includes Korea and Manchuria. Besides the three companies listed in this table, some of the other principal producers were Tamahagane Steel (located in Fube in Shimane Prefecture), Nippon Koshuha Heavy Industry (Shinminato, Toyama Prefecture), and Nippon Tokushu Kokan (Ominato, Tanabecho, Aomori Prefecture).

Showa Steel

Year

Table 5.2 Tonnage of pig iron produced by rotary kilns, 1940–5 (% in parentheses)

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person with the highest authority, to work out a solution in Chongjin. Having accepted his advice and directions, Mitsubishi without further delay embarked on running things by itself, beginning on September 9. From that time on, the Krupp engineers (including Johannsen) were there only to offer occasional advice, though this does not mean that operations ran smoothly after that. The company was to order, in addition to its Krupp-made rotary kilns, four other kilns from Mitsubishi Kakoki (Mitsubishi Chemical Machinery),17 but actual production figures for April 1940 were 5,200 tons of granular iron (equivalent to an annual rate of 60,000 tons), or less than half of the projected level (see Table 5.2). 3 Kawasaki Shipbuilding In January 1939, even before it received a licence from Krupp, Kawasaki Shipbuilding had already made a decision between two candidates for the site of a low-grade ore treatment plant. They were Kuji in Iwate Prefecture and Hachinohe in Aomori Prefecture, and the decision was made in Kuji’s favor. In.April of 1939, the plant began experimental operations, using two remodeled rotary drying ovens that had been used for the sponge-iron method by the former Tokiwa & Co. in earlier trials for developing as raw material iron sand of 30 percent grade. These remodeled ovens later became the No. 5 and the No. 6 small kilns. In August of 1939, official permission was granted and Kawasaki Shipbuilding’s Kuji plant was opened. The head of the plant was Nishiyama Yataro. ‘The plant was designed in Germany; the designs were revised by Kawasaki [Shipbuilding], and machinery was ordered in 1939 from Germany. . . . In the summer of 1940 some of the machinery arrived via Siberia,’ recalls Yamazaki Shoichi.18 Total cost of construction was 10.4 million yen, and the cost of experiments and research came to 1.5 million yen. Meanwhile, in February 1940, Kawasaki signed sub-licensing contracts with Showa Steel Works and Mitsubishi Mining regarding sub-licensing of the Renn process. The cost for rotary kilns amounted to 3.8 million yen, of which 2.25 million was paid to Krupp (this included license fees).19 For its supply of raw iron sand, the company purchased an iron sand-mine from Horai Shokusan, a liquidated company of the former Tokiwa & Co., in December 1940, redesignating it Kawasaki Kuji mine; and, in November 1943, it purchased the Ominato mine in Shimokita, Aomori Prefecture, from Nippon Tokushu Kokan (Japan Special Steel Tube), naming it Kawasaki Shimokita mine. Nishiyama insisted on complete independence in the construction of the plant. In other words, Kawasaki Shipbuilding did not request from Krupp a long-term secondment of engineers or foremen. This was in stark contrast to the procedures at Showa Steel’s Anshan plant and Mitsubishi Mining’s Chongjin plant. A young engineer engaged in the construction had the following reminisces of those days:

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Mr Nishiyama told us it was better for us to go to all kinds of trouble during the period of experimentation and acquire the technology ourselves. True enough, it might be easier to have Germans show us how to do things, he said, but then we would only be slavishly imitating skills, not acquiring our own skills, and he urged us to solve problems by ourselves. Since we had two and a half years to wait before the large kilns would be operable, we were able in that period of time to master all the skills. When the large kilns finally were in operation, we encountered no serious problems, and we were able to produce granular iron right from the start.20 True, at one time they invited to the plant the German engineers stationed in Chongjin. But, according to the engineer: The Germans only came to have a look around, and only for one or two days, and they did not give us any on-site lessons; we discussed things, if anything. Mr Nishiyama had told us to do things ourselves, and that’s what we did, using what documents we had.21 Between August and November 1941, two rotary kilns were completed. With a diameter of 3.6 meters and a length of 60 meters, they were in the same class as those at Borbeck and Anshan. It was right after the start of the Second World War that grain began to be produced with them.22 The output was sent to the new Nishinomiya plant in Hyogo Prefecture, where it was put into electric kilns in a proportion of 7:3 with scrap iron and used to make steel for cartridges, special steel sheets for aircraft, and gun-barrel steel, among other products. From March 1943, the two smaller ovens mentioned earlier (1.8 meters in diameter, one 15 and the other 25 meters in length) began operations, producing granular iron at a daily capacity of 8 tons. In addition, two more large kilns were ordered from Mitsubishi Kakoki, with December 1944 set as the target date for their completion. But the war ended before they were completed and, in December 1945, with anthracite coal from Korea proving hard to come by in the post-war turmoil, all operations came to a standstill. The actual output from the two large kilns in the seven-month period from April to October 1944 was 62.6 tons of granular iron per day per kiln (at an average operating rate of 52.8 percent). This corresponds to an annual output of approximately 23,000 tons. The levels in Table 5.2 more or less agree with this figure. Over half of the reasons for the low operating rate are attributable to the brick-laying method, with machinery repairs the second-most frequent reason.23 At the peak of its activities in 1944, the Kuji plant employed a total of 1,258 people, of whom 199 were whitecollar workers, 789 were factory workers, 7 were day-laborers, 46 were Korean laborers, 197 were trainee factory workers, and the remaining 20 performed miscellaneous roles.24

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4 Nippon Kako Nippon Kako obtained a sub-license for the Krupp-Renn process from Showa Steel Works and Mitsubishi Mining in October 1939; at the same time, it sent several of its engineers to Anshan, Chongjin, and Kuji to acquire the necessary skills. In return, it shipped raw ore to Krupp for testing and obtained favorable results. It also leased an idle rotary kiln from Nanao Cement (present-day Sumitomo Cement Nanao plant), located at Nanao in Ishikawa Prefecture, using it for commercialization experiments, and in March 1940 finally produced granular nickel. Its success was the result of its own research efforts and its grasp of the fine details of the Krupp-Renn process.25 In January 1941, the company succeeded in producing nickel specialized steel at the Kawasaki plant using this granular nickel. Before this, in July 1940, the father-and-son team running the company received a request from the army to go into commercial production, using the Renn process: Mori Nobuteru, the chairman of the board, and Mori Akira, the president of the company, were called to the War Preparations Department of the War Ministry, where Major Tomizuka gave it as the unanimous opinion within the army that development of the Oeyama nickel resources was a matter of the utmost urgency, and they were asked if they were keen on putting things on an immediate production footing, and told that, if necessary, the military was prepared to embark on direct development.26 Responding to this request, Nippon Kako took the first big step toward commercialization. The company selected an industrial site near Oeyama mine in Kyoto Prefecture, named it the Iwataki Plant, and in August 1941 began construction. Production started in December 1942. The diameter of its four rotary kilns was 3.6 meters, putting them in the same class as those at Anshan, but in length they were 70 meters, or 10 meters longer than those at Anshan. Unlike the kilns of the other three companies under discussion, Oeyama’s were made-in-Japan products from start to finish. Two of them were made by Kawasaki Heavy Industries (the former Kawasaki Shipbuilding), and two were manufactured by Mitsubishi Kakoki.27 Plans were made in 1944 to shift two rotary kilns from Nippon Tokushu Kokan in Ominato to Oeyama, but the move was canceled. At the peak of production in the spring of 1945, Oeyama had 3,400 employees. Approximately 800 of these (including Chinese and Korean laborers, Allied prisoners of war, and volunteer workers) worked in the smeltery. The granular nickel produced here was used for armor-piercing shells, bombs for the navy, air chambers and buoyancy chambers in torpedos, aircraft propellers, and so on. The company history of Nippon Yakin Kogyo, the successor of Nippon Kako, refers to ‘the rough-and-ready approach in wartime

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conditions, when they rushed into dry-process operations at the command of the military, using low-quality ore.’28 5 High on organization, low on results From the overall picture gained from the four cases discussed here, we can draw the following general conclusions. It is clear that decisions to go ahead with commercialization were greatly influenced by requests from the Ministry of Commerce and Industry or from the army. This was obvious in the cases of Showa Steel Works, under the leadership of Godo Takuo, and Mitsubishi Mining; there was strong evidence of this influence in the cases of Kawasaki Shipbuilding and Nippon Kako, as well. Still, there is no denying that the enterprises could see advantages in the production cost guarantees and the favorable market prospects of a link with military demand. It is clear also that there was close cooperation among all the Japanese companies in research and development and in the commercialization process, demonstrated by the way the German engineers sent to Chongjin visited Kuji, and the fact that the Anshan, Chongjin, and Kuji plants accepted visits from engineers employed at the Oeyama plant. The move to domestically produced machinery, too, was shouldered by Mitsubishi Kakoki and Kawasaki Shipbuilding, the two of them maintaining close contact in this area. These facts no doubt had a strong bearing on the policies adopted by the Japanese Government. Let us take the case of the three companies that dealt with steel. Around the time that each of their plants began operations, their existence came to have even greater political importance, following enforcement of a ban in September 1940 by the US Government on scrap-iron exports to Japan because of the advance into northern French Indo-China of Japanese troops and the conclusion of the Tripartite Pact among Japan, Germany, and Italy. Japan’s steel industry had become heavily reliant on the import of scrap iron from the USA, so this measure came as a serious blow, and the plan to expand steel production was in dire need of basic revision. At the same time, the objective of autarky through the treatment of low-grade ore was being pushed with greater energy than ever. A typical example of this can be found in the words of Okochi Masatoshi, himself one of those who were doing research on, and trying to develop the technology for, low-grade ore treatment: What other way is there to defeat a hostile nation without the use of arms except through the production of goods? . . . For that reason, the rotary kiln steelmaking process is a new steel-making process that admirably suits present-day Japan.29 Despite the high hopes, actual output fell far below expectations, as we have seen in our examination of individual cases. The overall results can be confirmed by looking

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back at Table 5.2, where we see that the total pig-iron production by the rotary kilns was approximately 110,000 tons in 1942; yet this total production figure was only a little over half the 200,000 tons that had been targeted by just one of the companies, Showa Steel Works.30 True, this shortfall in actual output was inseparably linked with trends in Japan’s war-time economy as a whole, but one thing that needs to be noted is that in each of our four cases there were to be found also, to a greater or lesser degree, technical difficulties. Setting aside Nippon Kako, which dealt with nickel production, and restricting ourselves for the moment to the other three cases, we find that, while Showa Steel Works’ Anshan plant operated comparatively smoothly, Mitsubishi Mining’s Chongjin plant and Kawasaki Shipbuilding’s Kuji plant had numerous problems. Mitsubishi Mining’s Chongjin plant, in particular, experienced a great deal of trouble in the process leading up to the start of operations, and a part of this trouble was the conflict that arose between the company and the group of Krupp engineers. III THE TECHNOLOGY-ABSORPTION PROCESS AT MITSUBISHI MINING’S CHONGJIN PLANT The phrase ‘technology transfer’ includes the whole process from the first contact between the deliverer of the technology and its recipient, through the conclusion of a contract and the construction of plant and equipment, right up to and including operations. Seen from the perspective of the recipient of the technology, this process can be described also as a process of the absorbing of technology. That is, a technology-absorption process really is a technology-transfer process observed from the point of view of the recipient of the technology. And within the whole process of transferral the process from plant and equipment construction up to the start of operations is perhaps the most important part from the standpoint of technology absorption.31 It is normal for technical problems to arise precisely in this process from construction to the start of operations and that these troubles frequently lead to conflicts. Fortunately, as regards Mitsubishi Mining’s Chongjin smeltery, a certain amount of documentation is still available. These documents shed light on the technical difficulties that occurred in the smeltery, how both sides tried to overcome these difficulties, and what conflicts arose between the two sides during that process. Based on this information, a clearer picture can be obtained of the technologyabsorption process involving the Krupp-Renn process and the problems this involved. 1 Minor conflicts during facilities’ construction The basic design for Mitsubishi Mining’s Chongjin smeltery was finished in mid1937 and construction began in 1938. Mitsubishi Mining ‘called in all sorts of

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specialists from the entire Mitsubishi Konzern.’32 Construction of the facilities was directed by a team of engineers from Mitsubishi Kakoki.33 The larger proportion of the workers were presumably transferees from the same company’s Musan mine located not far away. Krupp, acting within the terms of the contract, likewise sent a team of engineers. Sometime before the autumn of 1938, it sent Voss, a chief engineer, to Chongjin, and his job was to guide facilities construction and the start of operations. He was followed by two fitters and one kiln foreman, whose job was to give guidance regarding the start of operations and the handling of equipment thereafter.34 Separately, Remag, a German subsidiary of Österreichische Magnesitwerke, sent one bricklayer.35 Remuneration for the fitters was based on a rate written into the technology introduction contract and was paid in accordance with the number of hours worked, while the wage for the kiln foreman was fixed at a daily rate of 4 pounds sterling (about 70 yen). Mitsubishi was to bear their living expenses for accommodation and meals.36 It was not long before a minor conflict developed over Krupp’s dispatch of the fitters and foreman. Mitsubishi had asked for one fitter and two foremen in addition to chief engineer Voss (not counting the bricklayer from Remag). Apparently it had in mind doing as much of the construction as possible based on its own engineering skills. Krupp, on the other hand, maintained that it was more desirable, for technical reasons, to send two fitters and one foreman, or even better two fitters and two foremen.37 In the end, things went mostly Krupp’s way, and two fitters and one foreman were sent. Voss was the first to arrive in Chongjin; and, from December 1938 until just before the firing of the No. 1 kiln in February 1939, he sent a succession of reports on construction operations to the Krupp Gruson plant in Magdeburg, and asked for instructions. This series of reports contains concrete and vivid descriptions of the progress of construction and the various problems encountered. For example, he commented ‘It is a bitter winter, and because of the cold weather and snowstorms we cannot always work on consecutive days.’ Again: The laborers and skilled mechanics here don’t wear proper shoes; most of the time they wear cloth sandals. And they don’t wear sufficient clothing to work a whole day should it be snowing or cold.38 Besides lamenting the fact that work was behind schedule because of the continuing cold weather and because of the three-day holiday taken at the New Year, he pointed out that there was a problem connected with the shipping facilities linking the plant with the harbor.39 Despite all the difficulties, by early February kiln construction had made progress and the goal was in sight.40 Yet several minor conflicts arose during this short period as well.

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First, there was a conflict over blueprints. Krupp had sent Mitsubishi a basic blueprint, on the basis of which Mitsubishi had produced blueprints to cover particulars. Krupp then pointed out several mistakes in these detailed drawings, and went into great detail to provide advice regarding them.41 The issue was that the Mitsubishi side had made a considerable number of alterations to the original blueprint; the people at the Krupp Gruson works were not greatly bothered about changes in small points, but they had reservations about the changes that were more wide-ranging. One change they particularly objected to was the design change to the concrete bunker that encased the Renn rotary kiln. The Mitsubishi side had altered the design so that the height of the bunker was lowered from 12 to 9 meters; this would reduce its cubic volume considerably, and the Krupp people were concerned that this would lead to hitches in the running of the rotary kiln.42 Clashes arose also over the production of parts. Giving as their reason the difficulty of obtaining permission from the Japanese Government for foreign currency allotments, the Mitsubishi side put out feelers to Krupp about their desire to produce their own spare parts in-house.43 Krupp was afraid that technical difficulties would result. Of course, it may also have been concerned about the loss in sales, but one thing is certain: the Krupp people did not place complete trust in the technical capacity of the Mitsubishi side. The exchanges that took place in regard to bricklaying followed a similar pattern. Mitsubishi wanted to do the brick work on the No. 2 kiln and later kilns without any help from the Germans. Remag, the company that had sub-contracted for the brick work on No. 1 kiln, however, wanted to be responsible for the work on No. 2 kiln as well.44 In this manner, Mitsubishi Mining showed a strong desire to carry out the construction, using its own technology and production capacity as far as possible. This can be seen, of course, as a desire to cut down on construction costs as much as possible, but, it can also be construed as an expression of a confidence in and attachment to the technical skills of its own personnel. Krupp, on the other hand, did not always place confidence in Mitsubishi’s technical skills, and it was reluctant to accede to the latter’s demands. And yet there were occasions when Krupp was willing to use this spirit of enterprise of Mitsubishi to its own advantage. For example, Krupp gave in to Mitsubishi’s desire to encase the bottoms of the chimneys in bricks, and to adapt to this move, it changed the design of the throttle valves.45 Again, when Mitsubishi asked if it could use red iron ore with 45 percent iron content at Chongjin, Krupp showed a keen interest in the experiment and held out high hopes that it would be successful.46 2 Technical troubles after operations begin and Johannsen’s inspection The No. 1 kiln began operations on May 4, 1939, and on July 28 the firing ceremony for No. 2 kiln took place.47 From around this time, reports from Chongjin were sent by

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a fitter named Völkel, who had been sent there in order to give technical guidance at the time operations began. The two kilns, however, did not perform very well. An internal document from that time describes the situation in the following words: Because we are not accustomed to the method of operating the kiln, there have been repeated malfunctions of various sorts, but we managed to fix them every time and, in general, things were going smoothly, but then we could not succeed in removing the ‘ring’ that happened to develop inside the kiln in mid-July, and because of blockage inside the kiln and the inability to get a draft, operations had to be halted on 19 July. We then had to wait for the inside of the kiln to cool off, but despite all our efforts to remove the ring it proved stubborn and we had a most terrible time with it. . . . The No. 2 kiln was fired on 28 July and this was followed by a draft and the insertion of raw materials. Learning from our experiences in operating the No. 1 kiln, we adopted a new operating policy for this kiln, and as a result things generally went smoothly and for days we were able to obtain good-quality melted materials (products), but still the kiln conditions were subject to frequent changes, and we had a difficult time preventing the growth of a ring inside the kiln and accretions at the outlet, and removing them.48 The situation was viewed with considerable seriousness. This can be seen from the fact that the Mitsubishi side once again affirmed Krupp’s responsibilities and its duty to cooperate over the completion of the facilities and the running of the kilns.49 The conflicts gradually widened, this time over the causes of the technical troubles and the steps being taken to remedy them. Opposition developed between Hirose Seiji, head of the plant, and the fitter Völkel, especially over the handling of deposits that formed. Völkel’s version of the problem was that the technical troubles occurred because Hirose did not follow instructions and kept making changes to equipment and the methods of running the kilns.50 In the thick of all the serious problems that developed once operations had begun, Johannsen, the inventor of the Renn process and the highest authority on it, visited Chongjin in late August 1939. It seems that this visit had been scheduled right from the time when the contract was signed, and Mitsubishi seemed to look forward to receiving guidance direct from the authority himself, their expectations all the greater because of their growing lack of confidence in the abilities of Völkel. On August 23, Völkel guided Johannsen on a tour of the plant.51 On this occasion, the Mitsubishi side presented Johannsen with a seven-page list of questions. It included the following observation: The main difficulties are the following: (a) a ring of iron develops on the wall of the kiln; (b) the rotation of the kiln has to be limited because of the

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danger arising from the rise in temperature in the smokebox and the chimney.52 In addition, the Mitsubishi side requested precise instructions covering every aspect of the production process, from the mixture of raw materials and the designing and running of the rotating kilns to the production of grain and the operation of the separator. After several days of inspecting the plant, Johannsen attended a meeting with Mitsubishi representatives on August 28. Also present was Yamashita Motomi, an executive director of Mitsubishi Mining. After expressing his regret that he could observe equipment in actual operation for a total of only twenty-four hours during his stay of several days, he pointed out two things that should be done to the rotary kilns: first, the inner diameter should be enlarged; and, second, the iron ore should be ground more finely (the Mitsubishi side was sticking to an admixture ratio of 17 percent or more for ore 2 mm in diameter, but Johannsen indicated that it should be raised to 40–50 percent). According to Walter Lemke, who was representing Krupp’s Japan office at the meeting, the Mitsubishi side presented counter-arguments to each of Johannsen’s suggestions. With regard to the first point, the Mitsubishi side mistakenly interpreted it as meaning the 300-ton scale of the rotary kiln was too small and they queried in return why he had not recommended a bigger kiln right from the start. And they saw no need whatsoever to grind down any finer the raw ore used in No. 2 kiln. Johannsen had quietly let it be known to a certain Suzuki, who worked in Lemke’s office, that he intended to leave Chongjin if his suggestions were not immediately accepted. Lemke stressed that the improvements Johannsen had suggested should be carried out without fail; at the same time, he stated that, since Völkel had already pointed out the same things that Johannsen was suggesting, and it was only because of Völkel’s observations that Johannsen had been able to come up with a conclusion after only twenty-four hours of his own observation, the criticisms leveled against Völkel by the Mitsubishi side were, in his opinion, unjustified; and he left the meeting. It is a small point only, but the reason he gave for being forced to leave the meeting before it was finished was that Mitsubishi, without offering any clear explanation for doing so, had changed the time of the start of the meeting, and he castigated the Mitsubishi side for its arbitrariness.53 Thus, although his apparent antipathy to the Mitsubishi side could indicate that he was somewhat lacking in objectivity, as the sole ‘witness’ to what took place at the meeting, we know nothing of what happened at the meeting after he had left. In the end, the overall conclusion Johannsen drew from his inspection was (and this differs slightly from the mood of the aforementioned meeting) that he did not see any fundamental difficulties. Still, he drew attention to the fact that the kilns’ rotation was not yet what it should be because of the formation of rings inside the kilns from the materials put in, and he repeatedly pointed to the need to enlarge the

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inner diameter of the kilns, to grind the ore finer, and to keep a close eye on operations.54 In the end, Mitsubishi adopted the suggestions of the authority on the subject, and the inner diameters of the kilns were enlarged to 1,850 millimeters, and other steps were taken to make improvements.55 After September 9, the kilns’ operations were put completely into the hands of the Mitsubishi team of engineers, led by the head of the plant, Hirose. This was because Johannsen had left for his next inspection site, Anshan, and Völkel and the others who had been there until then had also departed. This, however, did not mean the beginning of smooth operations. In explaining why it handed over the equipment to the Japanese, the German side gave as one reason the fact that the Mitsubishi side had attained proficiency; it added another reason: the difficulty of achieving a common understanding and the strength of the ‘ambition’ of Mitsubishi personnel. Even after leaving for his inspection of the Showa Steel Anshan plant, Johannsen made a number of visits to Chongjin, giving advice and making suggestions. He advised, for example, that the daily output target be held for the time being to 250 tons, and, pointing to the rigidity of the system and hierarchy of the plant’s organization, he recommended that the loads borne by supervisors, and especially by foremen, be lightened. Johannsen’s observations, however, were no longer the advice and suggestions of one who was directly involved. On the one hand, he had some tentative praise for the technical ability of Mitsubishi personnel: Fundamentally, we cannot be of much help to the Mitsubishi’s people. This is something I have confirmed recently: they know very well how the plant has to be run, and they already are sufficiently well versed in this by themselves. On the other hand, he expressed some uneasiness about Mitsubishi’s technical ability: ‘It is a pity that our experts were sent back so soon.’56 In any case, whatever its reservations all Krupp could do after it handed over the plant to Mitsubishi was to place its hopes in Mitsubishi efforts. 3 Difficulties following the start of operations As noted before, operations did not necessarily run smoothly after the plant was handed over to Mitsubishi management. Operations at No. 2 kiln, which was restarted on September 2, came to a halt again on September 13.57 An internal Mitsubishi document explains: The kiln’s operations were temporarily suspended in late August and parts of it were rebuilt; on 2 September it was started again and was running comparatively smoothly, but because the chimney heat was maintained, a steel plate warped

106

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and took on a dangerous slant and metal fittings and other items were damaged, so on the thirteenth the kiln had to be closed down, and at present work is proceeding on the construction of a concrete chimney.58 The No. 1 kiln met a similar fate: restarted on September 17, it was closed down on October 18. On the other hand, two new kilns began operations: No. 4 on October 20 and No. 3 on November 24.59 By December 20, 1939, however, not one of the four rotary kilns was in operation.60 In late November, Johannsen paid another visit to Chongjin, staying several days. In a report, he gave a positive appraisal of the state of operations at Chongjin and of the attitude of Mitsubishi personnel: ‘It appears that Mr Hirose has kept things running extremely smoothly lately . . . . People have also become more modest, and they show a great willingness to accept new suggestions.’ At the same time, though, he made mention of the fact that the iron rings inside the rotary kilns were oversized, and he expressed concern at the poor state of the raw ore grinders. By way of a conclusion, he emphasized the need for a thorough reinspection of all the equipment at the hands of a team of Krupp technicians.61 But the head of the plant, Hirose, did not accept that there was any such need, nor did he undertake any improvements to the grinders.62 According to a report by a businessman from Krupp’s Japan office, who made a subsequent visit to Chongjin, there was no sign of any fundamental improvement in developments, and the actual output in April 1940 did not go beyond 5,200 tons (equivalent to an annual output of 60,000 tons) of granular iron, and all four kilns were operating far from smoothly. The situation in May and June was also bad, and he feared the Japanese Government’s lack of confidence in the Renn process would grow.63 In December 1940, Krupp sent a different engineer to Chongjin. He received an extremely negative impression of the entire Chongjin plant and, like Johannsen, came to the conclusion that a radical reinspection was needed.64 4 The ‘ambitiousness’ of the Japanese The foregoing analysis may have given the impression that the Mitsubishi case was a string of successive technical problems and personal conflicts. During construction of the plant and equipment, there was a clash of opinions over the composition of the personnel (the number of fitters and foremen to be sent), and small conflicts developed over Mitsubishi’s changes to blueprints, the supply of parts, and the brickwork. At the stage when operations were ready to begin, technical problems recurred as the materials put into the kilns stuck to the walls in the form of rings, and conflict spread over the causes and the steps to be taken to remedy the situation. The inventor of the Renn process, Johannsen came to inspect the plant, and he

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pointed out a number of problem areas as well as offering suggestions, which the Mitsubishi side accepted to a certain extent. At this point, Krupp handed over the plant to the Japanese side and left Chongjin. But after operations had begun, there was no evidence of fundamental improvement, and time after time operation of the kilns had to be suspended because of ring deposits. The cooperation required between Krupp and Mitsubishi thus was not always a harmonious exercise. One thing that pervaded the whole conflict-ridden process of technology introduction is the posture taken by the Mitsubishi side of relying on their own ability. Each of the four companies that introduced the Renn process had built up, to varying degrees, its own experience of development efforts prior to signing a contract with Krupp; and it was only after each had encountered certain kinds of technical difficulty at some stage or other of their independent development efforts that it had decided to introduce the Krupp-Renn process. Our analysis of the case of Mitsubishi Mining gives a more concrete confirmation of this common pattern. In this case, a greedy desire to absorb technology existed side-by-side with an unwarranted confidence in its own abilities. It cannot be denied that this attitude on the part of the recipients of the technology was partly to blame for the technical problems that arose. It seems equally clear that it was one of the reasons for the escalation of conflict. As seen from the Krupp side, the desire to carry on their own development came across as ‘ambitiousness,’ or a desire to succeed, on the part of Mitsubishi’s personnel. Ironically, this expression tallies exactly with the word that Carl Bosch, chairman of the board of directors of I.G. Farben, had used over ten years earlier when that company was confronted with the emergence of Japan’s dyestuff industry: ‘the almost morbid ambition of the Japanese.’65 This ‘ambitiousness’ no doubt reached even greater heights against the background of the autarky objective. IV CONCLUSION To conclude this initial consideration of technology transference ‘downstream,’ it is worth touching briefly on the technological and managerial continuity and discontinuity between attempts at the commercialization and transfer of the KruppRenn process prior to the Second World War and post-war West Germany’s steel industry and that of Japan. In 1945 there were thirty-eight rotary kilns in operation worldwide, with a combined annual total production capacity of 1 million tons of granular iron. After the war, all such facilities inside Germany were dismantled. The kilns in Korea and China met the same fate, and they were taken away to the Soviet Union. Only the facilities in Japan and Czechoslovakia remained intact after the war. After 1950, Krupp built new Renn kilns at Borbeck in Essen and at Watenstedt-Salzgitter, and a new plant in Stürtzelberg. Krupp began operations also in Spain and Greece.66 But a little over ten

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years later, the plants in Salzgitter and Essen were closed in quick succession under pressure from the fall in prices of imported scrap iron and foreign ore. The curtain fell on the history of the Krupp-Renn process in West Germany.67 As for the Japanese steel industry, the Renn-process facilities in Japan went down a path similar to that in West Germany. At the Kawasaki Heavy Industries’ Kuji steel works, the small kilns were put back into operation in 1949, and between 1957–9 the two large kilns made by Krupp were reactivated. In the meantime, in 1950, Kawasaki Steel separated from Kawasaki Heavy Industries and became independent, and, at the same time, the Kuji plant was transferred to the control of Kawasaki Steel. The Kuji plant made a series of technological improvements, so that in 1963 it achieved a production output of 72,000 tons of granular iron. Hopes for the further development of the Krupp-Renn process as a direct reduction process rose. But the scarcity of good-quality iron sand resources, the drop in the value of granular iron as raw material for specialized steel as a result of advances in iron manufacturing technology, the drop in cost of scrap iron and imported iron ore, and similar factors led to the removal of the large kilns to Chiba steel works in 1967 and the closure of the Kuji plant in September of that year.68 On the other hand, at the Oeyama plant of Nippon Yakin Kogyo, the successor to Nippon Kako, the manufacture of ferronickel was resumed after the war. The rotary kilns saw a succession of technological improvements, and they were still in operation as of 1992.69 And, in 1967, Japan Mining introduced the Krupp-Renn process in its Saganoseki smeltery and began the production of granular ferronickel. Thus, the Krupp-Renn process, which was developed for the purpose of steel production, survives still in its use for ferronickel production. In the area of the steel industry, however, its role is more or less at an end. There can be no denying that there was a degree of technological continuity into the post-war years, but discontinuity was the dominant characteristic. The same can, to a certain extent, be said of all war-time steel metallurgical technology:70 fundamentally, commercialization of the Krupp-Renn process was a ‘dead-ended endeavor; for the process was one that was in demand despite its high costs. It was, moreover, a process whose successful development required an environment driving toward autarky. In contrast, the managerial continuity with the post-war period is impressive. This continuity of personnel is typified by the fact that the person who promoted operations at Kawasaki Shipbuilding, Nishiyama Yataro, was later the President of Kawasaki Steel, just as the ‘ambitiousness’ manifest in those early days was transformed into the entrepreneurial spirits of post-war times.71 Similarly, the young engineers who had taken up the challenge of advanced technology became the core teams in the post-war steel industry. Many of the Showa Steel Works’ engineers who dealt with the Krupp-Renn process entered companies like Mitsubishi Mining, Kawasaki Steel, and Nippon Yakin Kogyo after the post-war pullout from occupied

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109

China. A typical example was the joining of Kawasaki Steel by Asawa Saburo, a leading engineer at Showa Steel Works. Thus, despite the fact that the transfer of the Krupp-Renn process was a limited technological success in the pre-war and war years, the post-war achievements of Japan’s steel industry to some extent testify to the ‘ambitiousness’ of the Japanese effort.

6 Downstream transfer of the Haber-Bosch process

The Haber-Bosch process for ammonia synthesis was of epoch-making importance to the modern chemical industry, since it resulted in the production of pure hydrogen and nitrogen gases, allowed for the industrial control of high-temperature, highpressure reactions, and subsequently developed an effective industrial catalyst. The worldwide diffusion of this process was occasioned largely by the Allied countries’ requisition from Germany of the process during the First World War. Thereafter, development of similar manufacturing processes took place in a number of countries, including France, Italy, and the United States.1 The first case of actual licensing was that made to the Japanese company Taki Seihisho (Taki Fertilizer Works), leaving aside the case of the politically enforced licensing by the German chemical firm Badische Anilin- und Soda-Fabrik (BASF), which held the patent, to a French firm in Toulouse during the chaotic, immediate post-war years, and also excepting the case of licensing in 1927 by I.G. Farben to its Norwegian subsidiary Norsk Hydro-Elektrisk Kvaelstof.2 In 1935, Taki Fertilizer Works was a phosphate fertilizer manufacturer with a paidup capital of 3.5 million yen (approximately one million US dollars); it had approximately 800 employees in 1938.3 In terms of assets, it was ranked 159th among the 200 largest Japanese firms in 1930.4 However, while not a small company, it could not be regarded as representative of the large-sized firms of this period. Also, the calcium superphosphate sector was an area of the chemical industry that was not especially sophisticated. The fact that such a firm should at this early date enter into a contract for technology transfer with I.G. Farben, the world’s largest chemical company at the time, and that it should undertake the challenge presented by the high technical standards required for ammonia synthesis, is of considerable interest. In this chapter, I investigate the ambitious attempt by Taki Fertilizer Works to accomplish the transfer of technology for the Haber-Bosch process. The analysis will concentrate on developments from the construction of the plant to the beginning of operations. If one takes all of the activities involved in what is meant by ‘technological transfer’ – from the initial contact between the technology supplier and the recipient, on to contract negotiation and agreement, through to construction

Downstream transfer of the Haber-Bosch process

111

and actual operation – then the most vital stages from the technological viewpoint are those which intervene between construction and the start of operations. I wish to emphasize the technology-receiving end as the main structural constituent of these stages, and will refer to these particular steps in the transfer as the process of technology absorption. In other words, the process of technology absorption constitutes the central steps that are involved in a transfer of technology. During the process of technology absorption, technical problems arise, and these in turn often result in conflict. In the case of Taki Fertilizer Works, what were the particular technological problems? How did both I.G. Farben and Taki Fertilizer Works undertake to overcome these problems? Further, what disputes developed between the two parties during this process? In this connection, our attention obviously will be directed toward the business strategies and organization of Taki Fertilizer Works. This case study provides good documentation on the basis of which to acquire an understanding of the reception in Japan of the advanced chemical industry, an industry which initially took root in the West.

I DIFFUSION OF THE HABER-BOSCH PROCESS IN JAPAN 1 Change in I.G. Farben’s strategy Japan was not exempt from the diffusion of the Haber-Bosch process that took place through the development of similar processes in various countries worldwide, chiefly in France, Italy, and the USA. In Japan, while development and commercialization of the Tokyo Industrial Institute process was carried out, after the introduction of the Casale process in 1923 by Nippon Chisso Hiryo (Japan Nitrogenous Fertilizer), a succession of varying processes for ammonia synthesis, including the Claude, Fauser, Mont Cenis (Uhde) and NEC processes, were introduced. Regarding this situation, one cannot help but feel a strong sense of agreement with the I.G. Farben engineer stationed in Japan: ‘The Japanese mentality is always in quest of something new, and it seems to matter little whether the “new” thing is really superior to the older or not.’5 The development of the Japanese ammonium sulphate industry in the 1920s owed much to this kind of energetic support for the introduction of technology. The patent for the Haber-Bosch process in Japan was confiscated by the Japanese Government during the First World War, and the exclusive rights to use the patent were sold to Toyo Chisso Kumiai (Oriental Nitrogen Association) established by major zaibatsu groups. However, Japanese chemical firms, including those of the zaibatsu groups, had no knowledge of how to put this process to commercial use. As soon as the war was over, therefore, some companies contacted BASF in the

112

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hope of acquiring the necessary know-how. BASF, however, demanded an outrageous fee of 68 million yen, and the Japanese firms had to give up the idea of acquiring the technology from BASF. Indeed, by quoting the prohibitively high fee, BASF made it known that it had no intention of offering licensing or technical cooperation. It should be kept in mind that the term ‘licensing’ is here used in a broad sense, since BASF’s patent in Japan was still in the possession of the Japanese Government when this episode took place.6 The reason why the Haber-Bosch process had not been introduced along with the numerous other processes for ammonia synthesis that had been commercialized is to be found, above all, through an analysis of I.G. Farben’s strategy. I.G. Farben did its utmost to refrain from employing the strategies of licensing or direct investment wherever expansion of exports was at all possible. In other words, it was a global policy, and not one that was adopted specifically in respect of Japan. By the mid-1930s, however, I.G. Farben had decided to change its strategy, and had started to consider licensing in the case of Japan. The background to this change was the fact that the Japanese market was already almost completely covered by Japanese firms, and prospects for an export expansion seemed remote. A second equipment investment boom in Japan’s ammonium sulphate industry, following on from the first one of the early 1920s, was experienced in the period from the end of the 1920s to the early 1930s. This coincided with a period of worsening global overproduction as the worldwide depression deepened. For I.G. Farben, the equipment investment boom in the Japanese ammonium sulphate industry meant the loss of the Japanese market and posed a threat also to the Chinese market. The policy adopted by I.G. Farben in response was to establish agreements with individual Japanese firms. These agreements were made in the context of the international nitrogen cartel (Convention Internationale de l’Azote, or CIA) established with firms in continental Europe, Britain, and Chile. Following on from a number of tentative endeavors over several years, three agreements were eventually signed in the period 1934–5. I.G. Farben was successful in limiting Japanese exports to China through these agreements but, in return, was forced to limit its own exports to Japan and China. Consequently, as an alternative to exports, I.G. Farben began to consider licensing. Moreover, the vigorous growth of the Japanese market demand for ammonium sulphate in the early 1930s had resulted in a succession of new entrants and expansion plans aimed at ensuring a share of the high profit margins. A number of these firms sounded out I.G. Farben as to the possibility of the introduction of the Haber-Bosch process. Although the fertilizer producers had been using the Casale and Claude processes, they were eager to introduce I.G. Farben’s Haber-Bosch process. Their zeal to introduce the process would have been fueled by characteristic

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113

Japanese curiosity and inquisitiveness; moreover, Japanese specialists rated the Haber-Bosch as the best process. The Japanese side offered I.G. Farben extremely favorable conditions to introduce the Haber-Bosch process. The high prospects for plant exports were also attractive for I.G. Farben. These were the factors that promoted a change in I.G. Farben’s strategy. At this time, I.G. Farben was considering a change in strategy not only in regard to Japan, but also Finland, Egypt, and Spain. It was considering also a plan for direct investment in Japan via a joint venture to be set up with the Mitsubishi zaibatsu. However I.G. Farben’s choice of licensing seems quite natural in view of the rapid development of the Japanese market. In fact, the Haber-Bosch process was to play the role of technological support for the third wave of equipment investment that took place in Japan in the latter half of the 1930s.7 2 Five cases of the introduction of the Haber-Bosch process As can be seen from Table 6.1, five Japanese firms were involved in the importing of the Haber-Bosch technology in the mid-1930s: Taki Fertilizer Works; Yahagi Kogyo (Yahagi Industry); Nippon Tar Kogyo (Japan Tar Industries); Dainippon Tokkyo Hiryo (Greater Japan Patent Fertilizer); and Dainippon Seito (Greater Japan Sugar). Of these, only Dainippon Seito, other than Taki Fertilizer Works, is listed among the 200 largest firms for 1930, being ranked in eighth position (Nippon Tar Kogyo was not founded until after 1930).8 The patent for the Haber-Bosch process had expired by the mid-1930s, so the arrangements made between the five companies and I.G. Farben were specifically for technological guidance, though in a broad sense they could be regarded as licensing arrangements. An analysis of these five cases, covering the steps involved from the initial approaches, through the signing of technology transfer agreements, to the start of operations, reveals both differences between individual cases and common elements.9 For example, one common feature was the vigor with which each Japanese firm pursued the realization of its contract. Moreover, the Japanese firms competed with each other in their efforts to realize contracts. This would seem to be a kind of ‘bandwagon effect.’ A second similarity was that plant supply became the main point of dispute in negotiations. I.G. Farben wanted to ensure that a commission was gained through the export of German equipment, but the Japanese firms desired supply to be carried out domestically wherever possible. However – and this is the third common factor – the actual contract drawn up in each instance stated that equipment supply was to be largely from Germany. Furthermore, responsibility for activities, from planning, equipment installation and test runs, through to operations, was to be taken by the I.G. Farben engineers and foremen dispatched to the site. Fourth, in many cases, technical problems developed, and these gave rise to disputes between I.G.

Hydrogen production process

Ammonium sulphate output (tons per year)

50000 50000 80000 50000 50000

Start of operationsc

(1) (2) (3) (4) (5)

2579000 2390000 4109395 Unknown Unknown

Payment (yen)

Mitsubishi Mitsubishi Mitsubishi Mitsubishi

Shoji Shoji Shoji Shojib

Intermediary 1935 1935 1936 1937 1937

Contract signed

Sources: Mainly from the records in the archives of BASF, supplemented by Nihon Ryuan Kogyokai (ed.) 1968: 136–7, 148–9, 152–7; T. Watanabe (ed.) 1968: 311; records concerning the introduction of the Haber-Bosch process by Yahagi Kogyo were not included in the latter source. Notes: In the Japanese sources, among the companies introducing the Haber-Bosch process, another name appears: Manchurian Ammonium Sulphate, which was planning to produce 200,000 tons of ammonium sulphate using the technology. However, the start of Soviet–German hostilities made the import of machinery impossible and the plan was never realized. See Sumitomo Kagaku Kogyo Kabushiki Kaisha 1981: 73. Since documents concerning Manchurian Ammonium Sulphate are not to be found in the BASF archives, it is presumed that the contract was not finalized. Besides this case, it is possible that there were other contracts that were not actually carried through to completion. a. In actual fact Nitto Kagaku Kogyo (Nitto Chemical Industry), a subsidiary of Dainippon Seito. b. Assumed. c. The date indicated in the contract for the start of operations (that is, indicating the date when I.G. Farben turned over equipment to the Japanese party). Concerning Nippon Tar Kogyo, this is why the Japanese data indicates 1939 instead of 1937. For Dainippon Tokkyo Hiryo and Dainippon Seito, since documents were not found in the contract files relating to these companies, the entries here are as indicated in the documents of the Japanese parties. Farben and the Japanese parties. These disputes resulted largely from the reluctance

1938 1938 1939 1939 1940

Aqueous Winkler Winkler Aqueous Aqueous

Befu, Hyogo Prefecture Nagoya Kurosaki, Fukuoka Prefecture Yokohama Hachinohe, Aomori Prefecture

Sumitomo Precision Chemicals Toa Gosei Kagaku Kogyo Mitsubishi Kasei Kogyo Nitto Kagaku Kogyo Nitto Kagaku Kogyo

Taki Fertilizer Works Yahagi Kogyo Nippon Tar Kogyo Dainippon Tokkyo Hiryo Dainippon Seitoa

(1) (2) (3) (4) (5)

Location

Current name

Company

Table 6.1 Introduction of the Haber-Bosch process in Japan, 1935–40

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115

of the Japanese parties to entrust operations completely to I.G. Farben, including those of a technological nature, and the desire of the Japanese to participate actively. It is fair to highlight the difference between this arrangement and the full turnkey basis generally adopted in current technology transfers to developing countries. Finally, despite the various problems, a number of Japanese firms went on to draw up expansion plans based on a greater scale of equipment. Of the five cases, Taki Fertilizer Works and Nippon Tar Kogyo stand out, particularly with regard to the above similarities. These two firms were the most energetic. Moreover, both persisted on the issue of domestic equipment supply, and this either prompted negotiation difficulties with I.G. Farben, which was insisting on equipment exports (in the case of Taki Fertilizer Works), or resulted in disputes after the conclusion of negotiations (as was the case with Nippon Tar Kogyo). Also, a number of serious technical problems developed in both cases in the period of operational start-up. These engendered conflicts and delays in planned deadlines for the equipment transfer from I.G. Farben. Despite these events, however, both companies were already planning the second phase while plant construction, the first phase, was still in progress. There are, however, differences between the two cases: • Taki Fertilizer Works entered into direct contact with I.G. Farben, whereas a trading company, Mitsubishi Shoji, played an important intermediary role for Nippon Tar Kogyo. • Nippon Tar Kogyo dispatched a technical team to inspect plants and conduct tests on unprocessed coal. Taki Fertilizer Works does not seem to have done this. • Nippon Tar Kogyo had access to the unprocessed coal of Mitsubishi zaibatsu, and introduced the Winkler process of hydrogen production, the most advanced process at that time. In contrast, Taki Fertilizer Works introduced the aqueous process. • Moreover, whereas the managerial staff of Nippon Tar Kogyo took I.G. Farben as their model for a comprehensive chemical firm and aimed at creating an ‘Eastern I.G. Farben,’ Taki Fertilizer Works does not seem to have had any such managerial idea. These differences were probably related to whether or not the firm was affiliated with a zaibatsu. Taki Fertilizer Works was a family concern, but its undertakings were not diversified enough for its inclusion in a zaibatsu, whereas Nippon Tar Kogyo, in effect, functioned as the chemical arm of the Mitsubishi zaibatsu and consequently enjoyed a number of advantages.10 In the following analysis of the technology transfer of the Haber-Bosch process to Taki Fertilizer Works, I shall endeavor to point out any features which contrast with the case of Nippon Tar Kogyo.11

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Licensing strategy

II TECHNOLOGICAL ABSORPTION OF THE HABER-BOSCH PROCESS BY TAKI FERTILIZER WORKS 1 Employment of technical staff and workers The first task undertaken by Taki Fertilizer Works after the signing of the contract with I.G. Farben on May 28, 1935 was the recruitment of technical staff and workers. Kikuchi Kitsushiro entered the company as chief engineer on the recommendation of Suzuki Shoten (Suzuki & Co.). He began duties at the end of March 1936. As he was the sole engineer with experience of ammonia synthesis, he was put in charge of construction.12 On the engineering staff were five new employees with university or technical-college education who entered the company in the spring of 1936. An unusually large number of university and technical-school graduates were recruited in 1936 for posts, including those of an administrative nature. This was part of the company’s strategy in preparation for entry to the ammonium sulphate sector, to be achieved with the introduction of the Haber-Bosch process.13 Prior to Taki Fertilizer Works’ involvement in the ammonium sulphate sector, its personnel in May 1934 had numbered 44, of whom 4 were graduates of university and 3 of technical college; all having majored in technical subjects. In December 1938, after Taki Fertilizer Works had entered the ammonium sulphate sector, the number of personnel had increased to 62, representing an increase of around 50 percent over this four-year period.14 Further, the 7 graduates of university or technical college represented 16 percent of the total personnel in May 1934. By 1943, with regard to the ammonium sulphate plant alone, there was a technical staff of 8 (one university graduate and 7 technical-college graduates), which accounted for 35 percent of the total staff. An absolute and relative increase in the number of personnel, especially of technical staff, accompanied the firm’s entry of the ammonium sulphate field.15 Further, as can be seen from Tables 6.2 and 6.3, employment of graduates of university agricultural faculties (agrochemical departments) was reduced and, instead, the number of graduates recruited from applied chemistry departments was augmented. The employment of graduates of electrical engineering departments was also begun. Regionally, the main source of employees shifted from the Kansai region, where Taki Fertilizer Works was located, to the Hokuriku and Chubu areas, so that recruitment was expanded. Since the post of plant manager was an administrative one, matters concerning plant construction were almost entirely untouched by him, and also by Tsuji Minato, the consultant who had been introduced to the firm by Suzuki Shoten; Yokoyama Buichi, the plant manager of Showa Denko’s (Showa Electric Industry) Kawasaki plant, provided advice of a technical nature on an entirely personal basis, but only actually visited the

117

Downstream transfer of the Haber-Bosch process

Table 6.2 University and college graduate personnel, Taki Fertilizer Works (as of May 1934) Technical subjects Mechanical engineering University Hokkaido Kyoto Kansai Kyushu Technical college Nagoya Kobe Hiroshima Total

Administrative Total

Chemistry

Agriculture

Sub-total

1

3 2 1

4 2 1

1 1

1 1

2 1 1

1 3 1 1 1

1 2

2

3

7

1

5 2 1 1 1 3 1 1 1 8

Source: Report on Personnel Ages and Life Histories, Work Regulations: Personnel List, Taki Kagaku.

plant two or three times.16 The technical team at Taki Fertilizer Works which was responsible for plant construction consisted of a number of the newly recruited engineers who were taken on around the time of the decision to enter the ammonium sulphate field; these engineers were under the direction of the 1936 recruit Kikuchi. The workforce of the ammonium sulphate plant was in part made up of workers transferred from the main factory, but in the main was composed of new recruits. Of these, 40 were skilled workers involved in the finishing processes, and some 30 were naval petty officers experienced in the operation of machinery. Altogether a workforce of 100 was assembled at the Table 6.3 University and college graduate personnel, Taki Fertilizer’s ammonium sulphate plant, 1943 Mechanical engineering University Kyoto Keio Technical college Nagaoka Kanazawa Hamamatsu Nagoya Kobe Total

Technical subjects Electrical Chemistry engineering

Administrative Total Agriculture

Subtotal

1 1

1 1

1 1

1

5 1 2 2

1

7 1 2 2 1 1

1 1 1

5

1

1

8

1

2 1 1 7 1 2 2 1 1 9

Source: Personnel List for Ammonium Sulphate Plant, Work Regulations: Personnel List, Taki Kagaku.

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Table 6.4 Organization of general and operative personnel, Taki Fertilizer Works (as of December 31 1938) Annex plant

Main plant

Total

General staff Administrative Technical Operatives Fertilizer production* Sulphuric-acid production Lead production Maintenance of gasoline engine Electrical engineering Lathe work Iron processing Wood processing Tin plating Ammonium-sulphate production Miscellaneous processing

31 10 21 387 135 83 7 8 26 2 15 1 0 95 15

31 (2) 19 (2) 12 352 167 73 6 12 11 3 25 14 2 0 39

62 (2) 29 (2) 33 739 302 156 13 20 37 5 40 15 2 95 54

Total

418

383

801

Source: Plant Report Tables 1933–1947, Taki Kagaku. Notes: Figures in brackets indicate the number of female employees. Besides the above, an additional 48 male and 12 female workers were employed, presumably engaged in handling materials. * Engaged in the production of phosphate fertilizers.

ammonium sulphate plant.17 The organization and composition of the general staff and the operative workforce after the commencement of operations are shown in Table 6.4. 2 Arrival of plans and machinery In accordance with the contract, the plant plans began to arrive from Germany. The young engineer, Ema Genzo, who had joined the firm in the spring of 1936, recalled the situation: As the plans from Germany started arriving one after the other, the first task was to organize and file these and then to make any necessary tracings. Next, calculations and the designing of necessary items had to be done, but it was impossible for me, lacking any experience, to envisage what the plant was going to turn out like. For example, Mr Kikuchi would give an offhand order such as, ‘Calculate the pressure loss of the synthetic plant,’ but it was impossible to foresee what the pipe lengths were going to be. Even if I managed to get some idea after searching through the plans for a long time, it was still impossible to tell what the resistance inside each of the particular towers was going to be. I was in

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the dark as to the structure of the synthesis towers. If I was seen hesitating, Kikuchi would staff reprimanding, ‘Well, what are you doing then?’ I became nervous. I would timidly confess, ‘I’m afraid there is a point I’m not certain about.’ He would throw some basic reference book in my direction with a brusque, ‘Look it up, then.’ In the end, after considerable searching, I would usually come up with some hint or clue. When I went to make my report after a certain lapse of time, the reply was either ‘OK’ or ‘You infernal ass.’18 The immediate entrusting of such tasks as the interpretation and calculation of the plans sent from I.G. Farben and of the design work based on these activities to the newly recruited technical staff caused considerable difficulties. Taki Fertilizer Works frequently consulted H. Ahrens & Co. Nachf., I.G. Farben’s Japan agency in the fields of fertilizers and synthetic oil, concerning difficult questions or uncertainties that arose over the plans. H. Ahrens replied at one point: Your reiterated enquiry with regard to the matter to which, heretofore, a reply on our part has already been addressed, would seem, with all due respect, to stem in our opinion from a less than sufficient comprehension of the technical clarifications previously indicated in our correspondence and the plans attached therein. . . . We are of the opinion that you should perhaps entertain the idea of employing an engineer with the competence to satisfactorily undertake a translation and provide clarifications of the technical terminology used in the correspondence and plans sent to you.19 This was the first letter from H. Ahrens to point out the deficiencies of Taki Fertilizer Works’ technical staff. This was to become a central issue between Taki Fertilizer Works and H. Ahrens. After the plans, machinery started to arrive. The machinery loaded on ship at Hamburg, Antwerp, and Rotterdam was transferred to barges after arrival at Kobe docks and sent on to Befu, where the company was located. By the end of 1936, the total dispatch had been received.20 The details and manufacturers were as follows: • high-pressure compressors and gas circulating pumps (Borsig); • water gas plant and conversion plant (Bamag-Meguin); • high-pressure apparatus, pipe lines and fittings, and measuring instruments (I.G. Farben); • high-pressure centrifugal pumps (Hydraulik); • ammonia water-pressing pumps (Balke); • free jet turbines (Escher Wyss); • transformer for electric heater (Siemens-Schuckert); • centrifuges (Gebr. Heine); • saturators (Schütze); • synchronous motors (AEG).21

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With regard to the storage of the machinery, we can again turn to Ema’s recollections: Eventually the machinery from Germany began to arrive, and I was ordered to look after its receipt; to check items against the inventory list, to sort out equipment by workshop destination, choose storage areas, and draw up handling precautions. I did my best to fulfill these duties, but looking back afterwards I’m afraid these efforts were not adequate. When one of the German engineers would come asking for such and such a machine part, I was sometimes unable to reply and had a lot of trouble searching it out. As the machinery and other steel items, including pieces weighing over 1,000 tons, were without a warehouse, I had difficulty in providing protective and waterproof storage. . . . I had been ordered to undertake storage of the received machinery. . . . I had spent all my time inspecting, removing rust, coating machinery with paint or grease. . . . Three workmen were newly employed and placed under my direction, but this was only some time after the machinery had been received.22

3 Arrival of the German engineers and foremen In accordance with the contract with I.G. Farben, German engineers and foremen were sent out to Japan. First, a five-member team arrived at Befu in the summer of 1936. This team, which was to spend a relatively long period on site, consisted of Walter Brennecke, a mechanical engineer, entrusted with overall supervision; J. Grafe, a mechanical engineer sent from Bamag, in charge of the gas generator furnace; foreman Karl Grässle; Werner Lück, a foreman from Borsig, in charge of compressors; and foreman J. König, in charge of ammonium sulphate production. As can be seen from Table 6.5, the number of German engineers and foremen gradually increased thereafter, and reached a total in August 1937 of 12 members, 3 of whom held doctoral degrees. Otto Ruhl, the chief engineer, dispatched from H. Ahrens, occasionally made inspection visits from Tokyo, and H. Steenbuck and G.R. Schmidt of the same company also made visits.23 In many of the cases of technology transfer to Japan which occurred during the inter-war years, similar dispatches of technical teams on a relatively large scale is to be observed. These teams were responsible for tasks involved in the various stages from plant construction to the beginning of operations. Other firms introducing the Haber-Bosch process at this time, and which also received technical direction from German teams dispatched for that purpose, were Yahagi Kogyo (two engineers and three foremen) and Nippon Tar Kogyo (three engineers and four foremen).24 In contrast to the so-called ‘employed foreigners’ recruited by the Japanese Government in the early Meiji period, these German

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Table 6.5 Numbers of German engineers and foremen dispatched to Taki Fertilizer Works, 1936–8

1936 December 1937 January May June July August September October November December 1938 January February March April May August–December

Mechanical engineers Chemistsa

Foremen

Others

2

0

2

0

4

2 2 2 2 2 2 3 3 2

0 0 1 2 2 2 2b 1 1

3 3 6 7 8 6 3 4 5

0 0 0 0 0 0 1c 1 1

5 5 9 11 12 10 9 9 9

3 2 2 1d 0 0

1 1 1 1 1e 0

6 5 5 5 1 1f

1 1 1 1 0 0

11 9 9 8 2 1

Total

Source: Monthly bill for salaries owing sent from H. Ahrens to Taki Fertilizer Works, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. Notes: a Listed as chemical engineers. b W. Scharlibbe (present from October to November 1937 and in January 1938) was the engineer in charge of compressors. He also had duties at Yahagi Kogyo and Nippon Tar Kogyo (H. Ahrens to Taki Works, September 21, 1937, Ammonium Sulphate Plant, Taki Kagaku). c Kurt Mau (October 1937–April 1938) was a chemical assistant. The salary for engineers and chemists was 1–2,000 yen, with an allowance of 800 yen. The salary of a foreman was 800 yen, with an allowance of 600 yen. However, Kurt Mau’s salary was 600 yen, with no allowances. He had been taken prisoner during the First World War at Tiantsin, China, and after the war had gained teaching experience at the Daiichi High School and elsewhere in Japan. d Walter Brennecke, chief engineer. e Ernst Münzing, chemist. f Karl Grässle, foreman.

engineers and foremen were dispatched on a firm-to-firm basis and formed teams to supervise the on-site construction of plants. These little-known foreigners in Japanese employ comprised the advance guard in the process of the transfer of managerial skills. Up to this point, the site selected for the ammonium sulphate plant was to be on land reclaimed from the sea in the vicinity of the annex plant. It was therefore to take the form of an extension of the annex plant site. After reclamation, the first official approval for use of the site extended in December 1937 was for 88,000 square meters. After this, approval was given for a second area of 37,000 square meters adjoining

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the first area.25 Takenaka Gumi (Takenaka & Co.) was the original contractor and undertook the work directly. Posts were driven in to act as reinforcements, as the site was on reclaimed land.26 Once the site had been prepared, the construction and the installation of machinery began right away, since plans and machinery had already been received from Germany. As can be seen from Table 6.5, a chemist was present at the plant in June 1937, by which time installation of the plant would presumably have been fully under way. 4 The German–Japanese interface The establishment of a cooperative network between the German team and the Taki Fertilizer Works team followed closely upon the arrival of the German engineers and foremen. The lower-level Japanese engineers were chosen to undertake direct liaison with the Germans. Many of these engineers were technical college graduates who had been in the firm only a short time. Organization of the German–Japanese interface was built around them, with the synthesis section handled by Grässle and Ema, the gas section by Grafe and Suzuki, the ammonium sulphate section by König and Wada, and the compressor section by Lück and Usui. Brennecke, the German chief engineer, was in overall command, and his orders were passed down through the German engineers to the lower-level Japanese engineers. All orders and instructions thus passed via these Japanese engineers. There were sometimes disagreements between the Germans and the Japanese concerning the division of tasks among the workers or the drawing up of schedules, and decisions on these matters were implemented by the Japanese engineers. Around the time of the arrival of the German team, the work tasks for the Japanese foremen were allocated. This was necessitated by the division of the teams into groups of 10–15 personnel. The Japanese chief engineer Kikuchi chose those new employees who were efficient and had the leadership potential to be foremen. Internal and foreman-contractual systems were eschewed in favor of direct control over the workforce by the managerial network.27 In this way, the flow of command at the construction site was from the German chief engineer to the German engineers and foremen, then via the lower-level Japanese engineers to the Japanese foremen, and on to the workers. The key position in this chain was held by the young Japanese engineers, as they received instructions direct from the Germans, and transmitted these orders to workers via their foremen; these engineers were responsible for establishing work tasks and the drawing up of schedules. They became the intermediaries between the Japanese workers and the German team and so constituted the vital link in the chain of command.

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These young Japanese engineers showed great eagerness in absorbing the technology passed on to them via the interface with the German team. This is clear from the following recollection: It was a great help that the foreign engineers spoke in very clear, simple English. . . . It was inconvenient that the foremen only spoke German, but during the work it was possible to get by, just using a few German words, and this actually worked well enough and the work proceeded. . . . Our education by the German engineers began with basic science, and they would test our knowledge of physics and chemistry. While occasionally praised, we were frequently caught out. For example, they would not accept the use of a certain formula for the solution of a given problem unless one gave proof of the formula itself, which caused us difficulties. When this happened, they would call us makeshift engineers. During training, they would severely reprimand us on the position chosen for directing work if it didn’t provide a vantage point for supervising all workers and subordinates. We were given daily lectures on ‘duty’ and ‘responsibility.’28 The Japanese engineers thus gained specialist expertise and supervisory practice; they also absorbed theoretical knowledge and a certain technical–managerial philosophy with uniform humility. Their techniques were perfected through on-thejob training, as described above. Ema recollects: There was no educational training per se such as exists now, when we first entered the Taki Fertilizer Works. . . . Until the construction of the ammonia plant was begun, I was temporarily superintendent of the calcium superphosphate plant. . . . Once some progress had been made with the construction of the buildings, I was ordered to take charge of synthesis. . . . Some thirty operatives were allocated to us and, with difficulty, arrangements for operations with the Germans were pushed ahead.29 Their expertise increased rapidly through such superintendent work. The final phase of plant construction and equipment installation was started in October 1937. On hearing of Ema’s conscription, Kikuchi, chief engineer, remarked: ‘It was like losing my right arm.’ The young engineers played a vital role as both engineers and superintendents, and made rapid progress over the short period of eighteen months.30 Through this process, Kikuchi – the keystone of the technical team prior to the arrival of the German team – was put in an increasingly unstable position in the system of control. This reflected his relations with the Germans and in particular with Brennecke. Of Kikuchi it was noted: [He] was in fact quite an aggressive man with a marked self-confidence in professional matters. He refused to give ground, convinced he was in the right.

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The Germans were equally obstinate at times and this caused heated arguments, often with the Germans withdrawing half winners, half losers.31 Moreover, Brennecke and Kikuchi were ‘often in disagreement with regard to the construction, and would have intense discussions.’ These disagreements ‘seem to have arisen between the rationalistic stance of the Germans and the more easygoing thinking of Kikuchi.’ For example, if a purchase order was brought in for a 30-meter angle or a 50-meter pipe, Kikuchi would add another zero and change the figure to 300 meters or 500 meters. Ema recalls that this was ‘a product of his familiarity with the American, magnanimous way of doing things.’32 Kikuchi had had experience in operating ammonia synthesis equipment using the Claude process at the Hikoshima plant of Toyo Koatsu Kogyo (Oriental High-Pressure Industry), a Mitsui-associated chemical firm, and had gained observational experience in the USA. He was a toplevel engineer with great self-confidence and pride, though his attitude on the construction site often resulted in tense relations with the German engineers. 5 Technological difficulties and conflicts regarding construction Generally speaking, there are problems and conflicts during the construction of any plant. Taki Fertilizer Works was no exception. One source of conflict was the interpretation of the contract. For example, transportation costs for the early construction phase were higher than anticipated, and a conflict arose as to which side should bear the burden of the overspend.33 Technological friction was more serious. Taki Fertilizer Works seems to have tried to minimize the building costs. Thus, the sea sand dredged during reclamation was used by Kikuchi for factory construction. The Germans demanded that this be rectified, but Kikuchi ignored their orders.34 Questions arose also over the quality of the synthesis equipment and of the bricks, and the skills of workers were in doubt. Yokoyama, providing technical cooperation from Showa Denko, remarked: It is perhaps true that Taki Fertilizer Works was good at buying materials and machinery for the new plant. It seems that construction costs were the cheapest. But because of this, the functioning of the equipment seems to have been hampered.35 His view seems inaccurate on the basis of a comparison of the actual figures with the amount stated in the contract to be paid to I.G. Farben. Yahagi Kogyo, introducing the Haber-Bosch process immediately after Taki Fertilizer Works, paid a total of 2.5 million yen, including a commission paid to Mitsubishi Shoji, which is almost the same as the 2.58 million yen paid by Taki Fertilizer Works.36 However, there are signs that the construction costs, which were not included in the contract, were met as cheaply as possible.

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On the German side, there was an awareness that this attempt by the Japanese to cut costs on material and equipment would result in quality problems: ‘There was little confidence in Japanese machinery and equipment. To give one example, inspection of each individual rivet to the steel frames was ordered.’37 The Germans also repeatedly drew attention to the insufficiency of Taki Fertilizer Works’ expenditure on experimental equipment and the weaknesses of their technical staff. As a result, H. Ahrens demanded a substantial strengthening of the quality of experimentation and suggested the immediate employment of university and technical-college graduate engineers, and the recruitment of a graduate chemical engineer and three or four assistants.38 Stages of the construction work dragged on beyond their deadlines. Yahagi Kogyo and Nippon Tar Kogyo had already begun construction, and because Taki Fertilizer Works was in competition with them it expressed dissatisfaction with the delays. Taki Fertilizer Works wrote asking whether the number of German engineers and foremen dispatched from H. Ahrens was not below that of other firms. H. Ahrens immediately sent a strong denial.39 6 Conflicts regarding the start of operations On December 1, 1937, the ammonium sulphate plant was finally completed. Test runs of equipment were begun. But, as recorded with frankness in the company history of Taki Kagaku (Taki Chemical) – the successor of Taki Fertilizer Works – ‘because of inexperience in running the technology, mistakes and unfamiliarity in handling, and the breakdown of machinery, the actual operation was still unrealized for some time.’40 Taki Fertilizer Works and H. Ahrens were in frequent disagreement over the reasons for these problems. On January 16, 1938, H. Ahrens wrote: ‘We are forced to stop every [sic] machinery . . . the lack of about 60 percent of workmen . . . there is no guarantee for the safety of run [sic] and machinery.’41 Conflict intensified. On January 29, H. Ahrens wrote: We regret it the most [sic] that the production could not start last May or June, but you alone are responsible for the delay, as a great deal of the Japanese parts and delivery were not finished in time. . . . With regard to the workmen, we would never have complained if actually 150 workmen had been available constantly. As, however, there is no proper supervision or discipline on [sic] your plant and every man can come and go as he pleases, the actual number of workmen has always been considerably smaller.42 Although representing the view of just one party in the conflict, these observations do indicate the managerial situation with regard to the workforce inside the plant. Responsibility for the actual supervision of the workforce definitely lay with the management, which had shown itself to be somewhat loose. In particular, it seems

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there were difficulties in controlling the skilled workers. Taki Fertilizer Works, at the limit of its patience because of the attitude of H. Ahrens and the grave technical problems that resulted in the test runs coming to a complete halt, informed H. Ahrens on May 4 of a freeze on all salary and allowance payments to the German engineers and foremen until regular operations were made possible.43 Shocked by this act, H. Ahrens continued to assert that the real cause of problems was Taki Fertilizer Works’ ill-considered economics and low technical abilities. It took up the problems of the quality of the gas plant bricks and of operative expertise.44 Further, on the basis of a report from Münzing, based in Befu, of an output of 165 tons in 24 hours, H. Ahrens adopted a stronger tone and declared that it considered Article 9 of the contract as met and that operations were formally under way.45 Thus, a critical phase in relations between the sides was experienced, but, in the end, a compromise was reached and a trial run undertaken for the guaranteed production output of 4,110 tons of ammonium sulphate, as specified by Article 9 of the contract. The level of achievement, however, was not satisfactory. According to the ‘Daily Report of the Ammonium Sulphate Plant,’ output figures were 65 tons on March 30, 67 tons on March 31, 52 tons on April 1, and 47 tons on April 2. Nevertheless, on April 1, a telegram was sent informing H. Ahrens ‘of our intention to take charge of the ammonium sulphate plant.’ On the same day, delivery of output from the warehouse was begun and the ‘Daily Report’ for April 1 noted this fact.46 Thus, during the negotiations held on April 21, 1938, it was declared that ‘Taki Fertilizer Works considers the guaranteed output as having been achieved according to Article 9 of the contract,’ and the equipment was transferred from I.G. Farben to the charge of Taki Fertilizer Works, and the remainder of the equipment costs was paid.47 With the start of operations and the warehouse dispatch of the ammonium sulphate on April 1, 1938, Taki Fertilizer Works joined the Union of Ammonium Sulphate Manufacturers, which had been established in accordance with the Important Fertilizer Control Law of May 1936. On April 2 the Ammonium Sulphate Production Increase and Distribution Control Law was passed and the Nippon Ryuan (Japan Ammonium Sulphate) was established as the central distributor.48 This was the reason why Taki Fertilizer Works took charge of the equipment, even though the output required by Article 9 of the contract had not been reached. Taki Fertilizer Works decided to take charge, in spite of the technical uncertainties involved, because of these developments in the ammonium sulphate control system. 7 Initiation of operations The ammonium sulphate plant started operations on a two-shift system. However, as frankly admitted in the company history: ‘From the beginning of operations, the

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productivity of equipment was quite far below the official capacity because of insufficient preparations and technical expertise.’49 Official capacity was 50,000 tons, while the output record for both 1938 and 1939 was 18,000 tons per year, which was further reduced after 1940. There was a serious lack of engineers, especially of young engineers, most of whom had been conscripted or had left the company. Toward the close of 1941, after the departure of the last Germans, an explosion occurred as the result of a fault in a safety valve of the hydrogen generator, and this resulted in the death of three workers.50 The chief engineer, Kikuchi, left the firm around the time of this accident, for reasons which are unclear.51 While construction work was nearing completion, President Taki Kumejiro set an expansion program with a target of 100,000 tons and actually let H. Ahrens and C. Illies & Co. have the use of a hydrogen production Winkler furnace for estimation purposes.52 However, imports of machinery became more difficult because of foreign currency factors following the outbreak of the Sino–Japanese War in July 1937. Moreover, as the ammonium sulphate plant was already encountering the problems just noted, there was little possibility of accomplishing such a program. In March 1942, Taki Kumejiro died. Since he had been the main driving force behind Taki Fertilizer Works, his death, in addition to the technical problems and unsatisfactory results, meant that the urge to continue the running of the ammonium sulphate plant was further eroded. Against this background, Taki Fertilizer Works took urgent steps to enter into a contract with Sumitomo Kagaku Kogyo (Sumitomo Chemical Industries), which had been involved in ammonia synthesis and ammonium sulphate production since 1931. III CONCLUSION We have examined the case of Taki Fertilizer Works in connection with the ambitious absorption in Japan of the Haber-Bosch process, which was the most advanced technology available worldwide in the 1930s. It is important to emphasize over all other factors the important role that was given to and performed by the cadre of young Japanese engineers at the plant site as the vital link between the German specialist team and the Japanese workers. Moreover, their enthusiasm in absorbing the advanced technology and the practical training their work gave them as supervisors are amply illustrated in the following extract: The synthesis plant was of a high pressure nature, which intrinsically required careful and accurate attention to each detail. For example, I was required to check each individual operation for the fitting of the pipe lining, regardless of size. The expertise involved to ensure that these were fitted neither too tightly nor too loosely and would not leak was very demanding, and so the work could not be entrusted to just anyone. The work was accomplished by a small number of

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particularly expert employees. . . . Once the piping for synthesis had been completed, a water pressure test for 450 kg per sq. cm was conducted for all the high-pressure sections on October 20, 1937. All the personnel were positioned and the water pressure was gradually raised to 450 kg per sq. cm. No leakage or other malfunctions were observed. So the water pressure test was passed on the first trial. The German engineer came up and was praising us highly, saying, ‘I’ve done work in various places, but this is the first time that a test run was passed first time so perfectly.’ However, I felt naturally compelled to make a sign of grateful recognition to the assembled workers. The real triumph was due to these workers, who had almost forgotten food and sleep to put all of their energies into the construction work over the last few months, and who had shown an exemplary spirit of ‘duty’ and ‘responsibility.’53 As can be seen from this, the absorption of technology was profound. The young engineers played the central role in the energetic absorption of the advanced technology and were vital to the bridging of the sharp technological divide that existed between the technology suppliers and receivers. It must be admitted, however, that there were deficiencies in the development of an organizational learning system that could respond fully to the organizational teaching carried out by the little-known foreigners in Japanese employ. The dissatisfaction of I.G. Farben and H. Ahrens during the construction phase was directed toward the issues of equipment and material quality, endangered by Taki Fertilizer Works’ cost-cutting endeavors, and toward a deficiency in the number of engineers available. There was no sign of a system in Taki Fertilizer Works to handle such criticism. The insufficient number of engineering staff was left unresolved to the end, and there was no formation of a technical team under a chief engineer. The direct cause of this lack in organizational learning was the technological difficulty involved in moving from the superphosphate sector into the ammonium sulphate sector. Taki Kumejiro, in the top managerial position as owner, seems to have shown an inadequate appreciation of such problems. However, more importantly, there do not seem to have been any professional managerial personnel positioned to correct this lack of understanding. In connection with the impact of technology transfer and absorption, the managerial side was unable to make the necessary changes in order to develop a managerial hierarchy. Taki Kumejiro was a typically authoritarian leader, unable to discuss matters with inferiors and capable only of issuing orders. For the sixty or so years from the company’s foundation until 1942, no clear plan of organizational structure had existed.54 At the managerial level, Taki Fertilizer Works was in clear contrast to Nippon Tar Kogyo, a Mitsubishi-affiliated company. The upper-level engineers, lower-level engineers and workers of Nippon Tar Kogyo were similarly lacking experience in

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ammonia synthesis. Consequently, despite the recruitment of German engineers and foremen to the company’s site, technical problems continued at Nippon Tar Kogyo, and these resulted in conflicts with I.G. Farben.55 However, these technical problems were due principally to the energetic introduction of advanced technologies such as the Winkler process and the Alkachit production process. Despite the conflicts, Nippon Tar Kogyo and I.G. Farben were able to overcome the problems through organizational and technical cooperation.56 Employing the assistance of Mitsubishi Shoji, as stipulated in the contract, Nippon Tar Kogyo dispatched a technical mission and also received support within the Mitsubishi zaibatsu from the veteran plant supervisors of Asahi Glass and the engineers of Mitsubishi Mining.57 Such support was made possible only with back-up from the Mitsubishi zaibatsu. Nevertheless, this was not the only contrast between the companies. The determination of the Nippon Tar Kogyo managerial staff to establish the company as an ‘Eastern I.G. Farben’ meant that much was learned from I.G. Farben in regard also to organizational structure.58 Such a spirit of organizational learning was not simply a byproduct of the company’s membership of a zaibatsu. The two companies form a striking and illustrative contrast with regard to their managerial organization. When Taki Fertilizer Works finally became aware of the need for organizational learning, there was no longer either an appropriate context in which to pursue it or the managerial power required to accomplish it. Taki Fertilizer Works embarked on a program of organizational learning with the cooperation of the Sumitomo zaibatsu, but by then it was already too late.

7 Downstream transfer of the I.G. process for synthetic oil

In the mid-1930s, I.G. Farben began to take steps to license its I.G. process for synthetic oil production to Japanese companies. At that time, Japanese companies were moving beyond the research stage into actual production of synthetic oil. I.G. Farben, however, failed to conclude a single contract with a Japanese firm in this area until January 1945, when it reached a licensing agreement with the Japanese army. I.G. Farben’s lack of success in licensing to Japanese companies, at least during the 1930s when it was feasible to ship plant and equipment to Japan, seems remarkable, given that synthetic oil production was at this time assuming greater importance in Japan. It was peculiar, too, in light of I.G. Farben’s earlier success in selling its Haber-Bosch process for ammonia synthesis in Japan (see Chapter 6, Section I, 2). Indeed, the firm itself went to considerable lengths to discover why, in spite of all its efforts, it was meeting with so little success. An examination of I.G. Farben’s internal records1 provides a basis on which to consider its attempts at licensing its synthetic oil process in Japan; it enables us also to examine the firm’s own analysis of its failure in this regard. In addition, I offer my own conclusions as to why I.G. Farben was unsuccessful. I

I.G. FARBEN’S LICENSING STRATEGYAND THE JAPANESE SYNTHETIC OILINDUSTRY

1 Adoption of licensing strategy By the mid-1930s, I.G. Farben was taking steps to license its synthetic oil production process and to export the necessary equipment to customers outside of Germany. In 1923, Badische Anilin- und Soda-Fabrik (BASF), one of the founding companies of I.G. Farben, had decided to use the Bergius hydrogenation process to try to produce large quantities of synthetic oil. I.G. Farben was formally established in December 1925, and six months later it began construction of plants capable of producing annually 100,000 tons of synthetic oil using the I.G. process, itself a

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refinement of the Bergius process. In April 1927, the firm began operating highpressure reaction chambers. Thereafter, technical problems prevented I.G. Farben from achieving any real economies of scale; this, together with Germany’s weakening economy, prompted a commission report presented at a meeting of the firm’s board of directors in June 1929 to call for a temporary halt to synthetic oil production. Production did continue, but I.G. Farben was not able to solve its problems until December 1933, when the firm reached an agreement to supply the Nazi Government with synthetic oil, and in so doing secured both a fixed price and a stable market for its product. Over time, however, I.G. Farben’s ties with the Nazi Government became more a burden than a blessing, largely because of the increased payments to the Government under the terms of its contract, and the emergence of competing operations. At this point, the firm began to move speculatively in several directions. One of these was the attempt to license its I.G. production process and profit from the resulting licensing fees; another was to invest in firms that had moved into synthetic oil production, expecting to receive a substantial dividend income; and a third was the adoption, as part of the firm’s participation in the Second Four-Year Plan in October 1936, of a policy of plant expansion and product diversification.2 2 The synthetic oil industry in Japan I.G. Farben’s initial attempts to market its I.G. process were thus being undertaken about the same time as it began selling its know-how of the Haber-Bosch process, when synthetic oil production in Japan was very much in its infancy. The Japanese Government did not begin to formulate a synthetic oil production policy until after the Manchurian Incident in September 1931, when it moved from simply encouraging research into coal liquefaction technologies to promoting largescale production projects in this area.3 Following Japan’s withdrawal from the London Disarmament Conference in January 1936, its Government issued a set of guidelines for oil production in July of the same year. The guidelines attempted to foster the large-scale development of alternative oils; they cited the need for legislation to this end and for the subsidization of firms engaged in coal liquefaction, synthetic gasoline research, or low-temperature carbonization.4 In the following year, Japan’s Ministry of Commerce and Industry formulated its own plans to promote synthetic oil production. The plans called for an annual production level of 2 million kiloliters to be achieved within seven years. The figure included production by low-temperature carbonization, which, if achieved, would represent a self-sufficiency rate of 50 percent. The ministry estimated that achieving this goal would require a capital investment of about 750 million yen. It was expected

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that coal liquefaction would account for half the synthetic oil produced. The legal basis for this endeavor was created in August 1937 with the enacting of the Synthetic Fuel Production Law and a law establishing Teikoku Nenryo Kogyo (Imperial Fuel Industry), both of which went into effect in January 1938.5 In May 1937, the Ministry of Commerce and Industry had set up its own Fuel Bureau, which had as one of its express functions the promotion of synthetic oil production. The bureau was managed by commissioned naval and army officers, while synthetic oil production was put under the direction of a naval officer.6 War with China officially began two months after the bureau was established. The aforementioned laws were milestones in the development of government policy with regard to synthetic oil production. The Synthetic Fuel Production Law established procedures for licensing production in this area. Licenses could be issued only to companies of which the majority of stockholders, executive positions, capital, and voting positions were held by Japanese nationals or Japanese corporations. The law required also that licensed companies produce at least 10,000 kiloliters of synthetic oil annually. For these companies, the law made provision for the expropriation of land, exempted the companies from taxes, and gave them startup money, among other measures, in addition to setting prices for their products and guaranteeing them a market.7 Imperial Fuel Industry itself was to be a national enterprise, half the capital of which was government-owned. The Government guaranteed it special privileges, as well as the requisite technical expertise, and also planned to supply 50 percent of the funds the company was expected to need over the seven years to follow. Meanwhile, in February 1936, Ruhrchemie had contracted to license its FischerTropsch synthetic oil process to Mitsui Bussan (Mitsui & Co.).8 By this time, considerable work had already been done in Japan on developing methods of hydrogenation, for which the I.G. process was a prototype. Research as well as trial production of coal hydrogenation were being carried out at thirty locations, including South Manchurian Railway’s Central Research Institute, the Ministry of Commerce and Industry’s Fuel Institute, the Institute of Physical and Chemical Research, and Mitsubishi Mining’s Research Institute. Coal hydrogenation was clearly the major focus of research during this time.9 Within I.G. Farben itself, due note was made of all this activity, and the firm’s interest in Japan increased accordingly.10 From the start, there was almost no possibility of I.G. Farben’s undertaking direct investment in Japan, either in the form of a joint venture or as an exclusive operation. I.G. Farben had no experience in actual materials’ production in the Far East and was undoubtedly wary of the potential political and economic hazards of such an undertaking. Even in Eastern Europe, the firm made no significant investment in 1939, indicating that its interest was mainly in licensing its production process and

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selling the equipment required for the process – at least this was the case as of the mid-1930s. II DEVELOPMENT OF LICENSING STRATEGY In considering licensing strategy development, an adapted version of Uchida Hoshimi’s model for analysis of technology transfer is used as it was for Chapter 6 also.11 How the initial contact came about between I.G. Farben and Japanese concerns will be examined first, to see which side took the initiative as well as to discern whether initial contact was made through trading companies, via direct personal contact, or through direct correspondence. Second, we will consider who carried out the negotiations and what role the trading companies played in this regard. Third, the discussion will turn to the negotiating strategies used by I.G. Farben (with regard to ensuring, among other things, that it had sole control of licensing) and by Japanese concerns (with regard to selecting the appropriate technology for their purposes and conceptualizing their projects), as well as to matters of contention between the two sides. Finally, the results of I.G. Farben’s dealings with the Japanese concerns will be considered. In some aspects, this investigation will be limited by lack of available source material. 1 Minami Manshu Tetsudo (South Manchurian Railway) I.G. Farben’s first licensing attempt in Japan was probably in early 1935, when the firm’s representative in Japan, H. Ahrens & Co. Nachf., began actively to solicit business from South Manchurian Railway and the Government of Manchuria.12 At about the same time, the Japanese navy had finally succeeded in getting an experimental oil project running at its Tokuyama Fuel Depot and was strongly urging South Manchurian Railway and Nippon Chisso Hiryo (Japan Nitrogenous Fertilizer) to move into synthetic oil production. South Manchurian Railway had previously participated in joint research with the navy and was under particularly heavy pressure to do so again.13 The principal Japanese negotiators for I.G. Farben were Tsuge, a financial advisor of the Manchurian Government, and Matsuoka Yosuke, who was, as of August 1935, president of South Manchurian Railway. Of the two, Tsuge was the more actively involved. Hermann Bosch, H. Ahrens’ president, attributed Tsuge’s level of involvement to the latter’s political ambitions; and Bosch therefore thought rather more highly of Matsuoka. Matsuoka, aware of the considerable research and development already undertaken by the railway itself, was initially very cautious. A telegram in December 1935 from H. Ahrens to I.G. Farben indicates that at this point Matsuoka favored the acquisition of rights to the I.G. process over the alternative option of investing in more research equipment. But there were limits to I.G. Farben’s

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ability to maneuver here because International Hydrogenation Engineering and Chemical (IHEC), an international joint venture, held international patent rights to all hydrogenation processes.14 In effect, IHEC prevented H. Ahrens from continuing negotiations with Matsuoka on I.G. Farben’s behalf by refusing to give its price quotes for the I.G. process. In addition, IHEC offered a rather cold reception to Abe Yoshinosuke, an engineer of South Manchurian Railway, when he visited Europe. Since early 1934, IHEC had taken an active role in matters involving hydrogenation processes in response to laws dealing with the oil industry. As Hermann Bosch saw it, South Manchurian Railway’s decision to invest 15 million yen in test plants of its own – plans that were made with the approval of the navy – reflected its awareness of IHEC’s tough position. The navy was strongly against the railway’s purchase of rights to the I.G. process. The navy’s disapproval, together with IHEC’s stance, led to the breakdown of negotiations between I.G. Farben and South Manchurian Railway. Instead, the railway began construction of plants in Fushun in Manchuria to produce an annual total of 20,000 kiloliters of oil using technology developed by the navy.15 As I.G. Farben saw it, negotiations with Matsuoka failed largely because of IHEC’s indifference to the matter. Bosch himself did not consider IHEC’s attitude a problem, since ‘from the start [i.e. from early 1935], we were firmly resolved to make it clear to the Japanese that we were not controlled by IHEC.’ Similarly, I.G. Farben’s position was that it would stop supporting IHEC in the licensing negotiations once it became clear that IHEC was not really willing to achieve positive results. Given this situation, IHEC was forced to re-evaluate its approach. I.G. Farben thereafter expended a good deal of effort to secure orders for German-manufactured equipment in cases where IHEC had reached licensing agreements for other projects.16 In fact, available documents indicate that from March 1937 through March 1938, I.G. Farben responded to enquiries from Japan by working hand-in-glove with IHEC to raise the prices on equipment.17 Indeed, IHEC seemed to have changed its approach, even though at this point it had yet to decide on an appropriate licensing schedule. 2 Mitsubishi Kogyo (Mitsubishi Mining) Mitsubishi Mining set up Mitsubishi Sekitan Yuka Kogyo (Mitsubishi Coal Liquefaction Industry) in August 1937 to produce liquefied coal using ore from Naihoro on Sakhalin Island. An initial capital outlay of 20 million yen was required, half of which was furnished by Mitsubishi Goshi (Mitsubishi Ltd), the headquarters of the Mitsubishi zaibatsu group.18 Mitsubishi Shoji (Mitsubishi Trading) acted as the mediator in negotiations with I.G. Farben to acquire equipment and a production license. In October 1937, I.G. Farben, then in the midst of trying to reach an agreement on equipment prices with IHEC, submitted a bid to Mitsubishi Shoji’s Berlin office. This was two months after the Synthetic Fuel Production Law had been enacted.19 The

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Naihoro-based plant was expected to produce an annual total of 50,000–63,500 tons of gasoline. I.G. Farben’s bid for the latter amounted to 24.22 million yen. This figure was for production facilities only, and did not include the licensing fee. Therefore, Mitsubishi Mining used Mitsubishi Shoji’s Berlin office to look into the Bergius process, and in the end decided against entering into a licensing agreement with I.G. Farben.20 It is not clear how close to an agreement Mitsubishi and I.G. Farben came. However, I.G. Farben’s estimate was higher than the capital of Mitsubishi Coal Liquefaction Industry, and, by contrast, when Mitsubishi’s Nippon Tar Kogyo (Japan Tar Industries) purchased equipment and a production license for the Haber-Bosch process, the price was only 4.1 million yen. Opposition from the navy and the prospect of no support from Imperial Fuel Industry probably also affected Mitsubishi’s decision. In this context, it is worth noting that in 1936 Japan Nitrogenous Fertilizer appropriated 10 million yen for synthetic oil research and spent several times that amount in constructing its Agochi plant in Korea.21 3 Ogura Sekiyu (Ogura Oil) In May 1939, I.G. Farben put together a progress report on the Japanese synthetic oil projects with which it had ties of some sort. These projects involved coal and tar liquefaction as well as oil hydrogenation.22 The projects with which I.G. Farben had connections were Ogura Sekiyu (Ogura Oil); the North China Project; Nissan Kagaku Kogyo (Nissan Chemical Industries); Nihon Sekiyu (Nippon Oil); Nippon Sekiyu Kagaku Kogyo (Japan Petrochemical Industry); Ube Chisso (Ube Nitrogen); Tokyo Gas; Sumitomo Kagaku Kogyo (Sumitomo Chemical Industries); Showa Seikosho (Showa Steel Works), Manshu Yuka Kogyo (Manchuria Fuel Liquefaction Industry); Manshu Tanko (Manchuria Coal Mining); and Nichiman Ekika (Japan–Manchuria Fuel Liquefaction). The major focus of interest on I.G. Farben’s part was Ogura Oil. I.G. Farben first became aware of Ogura Oil’s activities in synthetic oil production when it learned in June 1938 that Ogura Oil had been discussing the purchase from Krupp of three high-pressure reaction pipes.23 As a result, I.G. Farben had Otto Ruhl, of H. Ahrens’ Tokyo office, approach Ogura Oil. Ruhl found that the firm was planning a liquefaction project and was interested in the possibility of working jointly with I.G. Farben.24 H. Ahrens conducted initial negotiations with Ogura Oil. Later, when Ogura Oil withdrew from direct negotiations, Mitsubishi Shoji became involved. Ogura Oil planned to produce gasoline by hydrogenating light oil.25 Tests conducted by H. Ahrens at its Kobe laboratory yielded gasoline with an octane rating of 76, which I.G. Farben said could be raised to more than 90 by adding tetraethyl lead. I.G. Farben recommended using the gasification (Gasphase) hydrogenation process to achieve these results and estimated that equipment and licensing costs for the operation would amount to roughly 11.3 million yen. Since

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the Japanese Government was approving the use of foreign currency reserves only for projects with an annual output of at least 15,000 tons, I.G. Farben offered a second quote for a project of that scale. Ogura Oil then asked for an estimate for a facility with an annual production capacity of 30,000 tons. All of this activity took place between late July and late August 1938. In September, IHEC informed Ogura Oil of new licensing fees for the gasification process. For a facility annually producing 15,000 tons, the fee was set at 2.8 million yen. For each subsequent 10,000-ton increase in scale, the fee would climb by 1.05 million yen.26 In February 1939, a quote of 3 million yen was presented to Ogura Oil.27 Late in 1938, intensive experiments carried out at the Ludwigshafen works yielded gasoline with an octane rating of 92. This information was passed on to Ruhl in Tokyo. In turn, Ariga Teru, another official at H. Ahrens in Tokyo, informed Ogura Oil’s top manager, Nakahara Nobuhei, of the results.28 Ariga also told Nakahara that I.G. Farben would not be able to supply the two high-pressure reaction chambers required by a facility outputting 15,000 tons of oil annually, but that the firm had made enquiries in the US and had found that Bethlehem Steel could furnish the equipment in seven months and Midvale Co. in six or seven months. I.G. Farben sent Ruhl a rough draft of a contract for Ogura Oil by January 1939. But Ruhl did not show the draft to Ogura Oil, even after Nakahara had specifically requested a draft in February. Ruhl’s hesitation was due apparently to his assumption that the Japanese would be unwilling to share the technical information they already had or would subsequently acquire.29 In March, I.G. Farben told Ruhl that mutual cooperation in this regard was an essential precondition to a contract, and that without it the project would be abandoned. The problem this time was not I.G. Farben’s dependence on IHEC, but rather the need to conform to conditions already set by I.G. Farben and the German licensees of the gasification process – a problem that, as will be shown, was a frequent source of disagreement within I.G. Farben. In April 1939, work on the establishment of Toa Nenryo Kogyo (Toa Fuel Industry) began, with the involvement of Ogura Oil.30 I.G. Farben’s understanding at that time was that Japan was becoming increasingly interested in the construction of facilities that would yield 50,000–60,000 tons of gasoline per year, and that this particular planned facility was sponsored by the army, with no connection to Imperial Fuel Industry. I.G. Farben also saw that in the way of a successful Toa facility a major obstacle would be a combination of the German iron and steel industry in the Ruhr district (with its Fischer-Tropsch process), the Japanese navy, and the Mitsui zaibatsu; further, that this group operated in concert with Imperial Fuel Industry, the organization that was supposed to function as the overseer for all synthetic oil operation.31 At the end of May 1939, a report sent from Tokyo to I.G. Farben indicated that the Toa project involved not just Ogura Oil, but also Mitsubishi and Nippon Oil, and

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that any negotiations with I.G. Farben were to be conducted by Mitsubishi Shoji, which had already introduced the idea of a 5 percent commission.32 To I.G. Farben, the project took on a rather different character from the original plan, but a character considerably more attractive – it now appeared to be a purely military project, largely under the direction of Mitsubishi Mining. In June 1939, when Mitsubishi Mining formally requested of I.G. Farben sketches for a two-stage hydrogenation operation, IHEC decided that the request would have to be turned down if the two stages referred to the liquefaction (Sumphase) and gasification processes.33 At this point, while officials at I.G. Farben’s head office debated strategy and waited for Ruhl to return to Germany, Ogura Oil’s activities, including the Toa project and the planned importation of hydrogenation processes and equipment, were encountering stiff opposition from the navy. This opposition ultimately doomed what Ogura Oil had planned, despite Nakahara’s observation that a 3-million-yen license ‘was not unreasonable for Ogura Oil.’34 4 Other projects The North China Project In early 1938, a committee headed by Godo Takuo, a naval vice-admiral, asked Doitsu Senryo (German Dyestuff), I.G. Farben’s other representative in Japan, for estimates on coal hydrogenation facilities that could produce 50,000 tons and 100,000 tons per year.35 Mitsubishi Shoji acted as the negotiating intermediary. I.G. Farben’s estimates called for an investment in equipment and facilities on their part of £1.739 million and on the Japanese side of 18 million yen for an operation capable of annually producing 50,000 tons. For a 100,000-ton operation, the estimates were £2.88 million and 27 million yen, respectively. Iino Koji, a manager of Mitsubishi Shoji’s office in Berlin, was told that licensing fees would amount to £200,000 for the smaller facility and twice that for the larger one. The fee would be adjusted, as needed, to reflect actual output.36 The Japanese asked I.G. Farben to help finance the proposed operation, and Ruhl suggested that the German side supply the equivalent of 49.5 million yen and also cover 20 percent of the licensing fee (about 10 million yen). IHEC delayed responding to this proposal. Besides I.G. Farben, Ruhrchemie submitted a quote (for the FischerTropsch process), but I.G. Farben’s was lower for both equipment and operating costs. 37 Nissan Chemical Industries For some time, Nissan Chemical had been buying low-temperature carbonization equipment from Lurgi Gesellschaft für Wärmetechnik. The firm began plans for tar

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hydrogenation facilities and asked I.G. Farben to conduct tests on the tar it planned to use. Nissan Chemical negotiated directly with I.G. Farben. The latter, however, was aware that Nissan Chemical intended to use its own technology for the process, and therefore did not immediately reply to the request. When I.G. Farben became aware of Nissan Chemical’s plans to have a 250,000-ton carbonization facility built by the Aikawa business group’s Manchuria Heavy Industry, it had Ruhl, who was in contact with Nissan Chemical directors Ishikawa Ichiro and Furukawa Masashi, bid for a 10,000-ton facility. The bid took into account the difficulties Nissan Chemical might have in raising the necessary capital, and therefore included provisions for payment over a five-year period. The discussions between I.G. Farben and Nissan Chemical took place in February and March of 1939.38 Nippon Oil I.G. Farben’s Ludwigshafen offices dispatched to Ruhl a rough quote, to be sent on to Nippon Oil, for the production of aircraft oil by hydrogenating 10,000 tons of cracked gasoline and for hydrogenating 41,000 tons of lubricating oil.39 Japan Petrochemical Industry By July 1938, this firm received estimates from Ruhl for a facility to annually hydrogenate 10,000 tons of tar and coal. Japan Petrochemical Industry went so far as to send an observer to I.G. Farben’s operations at Oppau and to draw up construction plans for a 100,000-ton coal hydrogenation project, but showed no interest in acquiring the rights to I.G. Farben’s production process. Ube Nitrogen Ube Nitrogen’s interests were in hydrogenating tar and coal. In June 1937, I.G. Farben submitted a bid for a 20,000-ton tar hydrogenation facility. It also did tests on the coal and tar to be used at the facility during September and October of the following year, and in December submitted a bid on a tar hydrogenation plant that would annually produce 30,000 tons of automobile fuel. For an operation of the latter’s scale, IHEC wanted to set a license fee of 3.5 million yen.40 Tokyo Gas Ruhl learned of the interest of Tokyo Gas in synthetic oil production from Mitsubishi Shoji. As a result, by February 1939, I.G. Farben submitted a bid for a 16,000-ton tar hydrogenation project and also conducted tests on the tar to be

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used. To further the project, Shono Naosuke of Tokyo Gas was scheduled to visit Germany.41 Sumitomo Chemical Industries In December 1937, Nakao Shinroku, Kodama Shinjiro, and Shioya Jiro of Sumitomo Chemical Industries visited I.G. Farben’s operations at Ludwigshafen, Oppau, and Leuna while in Germany on other business. Kodama also met with IHEC representatives in London, but nothing came of these activities.42 Showa Steel Works I.G. Farben submitted bids for coal and tar hydrogenation plants to Showa Steel Works. The quote for a tar hydrogenation facility that would annually produce 80,000 tons of gasoline was 4.5 million yen.43 Manchuria Fuel Liquefaction Industry This firm planned to use its own Kuroi process, a method it had developed jointly with the Japanese navy to hydrogenate tar.44 In October 1938, Hama Jun, an official of the company, visited Berlin and told I.G. Farben of plans to use both the FischerTropsch process and the Kuroi process. I.G. Farben was aware that, on its own, the company could not succeed in this area. Manchuria Coal Mining In this case, I.G. Farben simply analyzed the coal submitted, as requested by the company. The coal contained large amounts of ash but relatively little sulphur, and was therefore judged suitable for hydrogenation. Japan–Manchuria Fuel Liquefaction The nationally run German mine Bergwerksgesellschaft Hibernia (HIAG) issued to this company a production license and also provided the know-how for coal hydrogenation. I.G. Farben maintained that it had the basic marketing rights to the process in question, but the International Hydrogenation Patent (IHP) had already bought the rights to the process within the British Empire, thus undermining any claim to exclusivity. I.G. Farben then tried to buy the rights outside Germany and the British Empire, but was unable to reach a price agreement with HIAG. HIAG at this point took steps to sell the rights to Japan–Manchuria Fuel Liquefaction, whereupon

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I.G. Farben once again resumed negotiations. IHEC warned HIAG that its activities constituted a patent infringement, although its major concern was that rights for the process were purchased at the originally quoted cost.45 Ruhl repeatedly advised I.G. Farben that the Japan–Manchuria Fuel Liquefaction project would encounter a rawmaterial shortage and therefore represented no threat to I.G. Farben.46 5 Summary The available research material indicates that I.G. Farben took the initiative in negotiations with South Manchurian Railway, Ogura Oil, and Tokyo Gas. On the other hand, both Nissan Chemical and the North China Project approached I.G. Farben first. It is worth noting that I.G. Farben actively dealt with South Manchurian Railway and Ogura Oil. In contrast with the case of the Haber-Bosch process, these were ventures in which the firm expended considerable effort. The role of intermediary played by Mitsubishi Shoji on behalf of Mitsubishi Mining and Tokyo Gas was particularly pronounced at the start. Subsequent to the initial contact between the two sides, Mitsubishi Shoji was more actively involved in negotiations for Mitsubishi Mining and the North China Project. It played an important role also in later negotiations between Ogura Oil and I.G. Farben. No other Japanese trading firm is mentioned in I.G. Farben’s records.47 Contact between I.G. Farben and Japanese companies went through several stages. In the cases involving South Manchurian Railway, Sumitomo Chemical Industries, and Manchuria Fuel Liquefaction Industry, there were meetings between the parties or visits to a particular site by one side or the other. I.G. Farben tested raw materials for Manchuria Mining. For Mitsubishi Mining, the North China Project, Nissan Chemical, Nippon Oil, Japan Petrochemical Industry, Ube Nitrogen, Tokyo Gas, and Showa Steel Works, the process got as far as the submission of bids, although the bid for Nippon Oil never got beyond Ruhl. Thus, at best, as of May 1939, I.G. Farben’s efforts to market its production process amounted mostly to drawing up rough estimates for potential customers. The results were meager indeed. III PROBING THE UNSUCCESSFUL RESULTS 1 Meeting with IHEC I.G. Farben considered Ogura Oil to be its most important potential customer once it realized that Ogura Oil’s proposed activities comprised a project exclusively for the Japanese army. Hence, Ogura Oil was the focus of attention when I.G. Farben conducted its own investigation of its inability to market its production process and of possible solutions to this problem. To this end, a meeting between I.G. Farben and IHEC was held at Ludwigshafen on July 18, 1938, at which Matthias Pier, an I.G. Farben representative, was present.48

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Those who spoke at the meeting paid due note to the increase of activity in Japan in the area of synthetic oil production. The firm’s strategy in dealing with the Japanese was described as consistent, and I.G. Farben and IHEC were portrayed as being in full agreement that the concluding of contracts with companies in Japan was of extreme importance. This concurrence of opinion is interesting in view of the fact that relations between I.G. Farben and IHEC were not always amicable. Indeed, eighteen months earlier, H. Ahrens had tried to sell the I.G. hydrogenation process to South Manchurian Railway and the Government of Manchuria. IHEC tried to involve itself in order to block negotiations, despite the fact that H. Ahrens was in the best position to take maximum advantage of the numerous oil-related laws promulgated in Japan. The question to be answered, then, was why had I.G. Farben and Ruhl, its representative in Japan, been thus far so unsuccessful in commercializing endeavors? A number of reasons were offered in this regard, but, ultimately, it was decided that newer and more detailed information was needed from Ruhl himself. 2 I.G. Farben’s internal investigation On June 9, 1939, Ruhl, having returned to Germany after failing in negotiations with Ogura Oil, attended a meeting of I.G. Farben executives.49 The meeting was chaired by Heinrich Bütefisch, who led a group of six representatives from the Leuna works. Also in attendance were seven personnel from the Ludwigshafen works and a representative from the Stickstoffsyndikat, the German nitrogen monopoly organization. The meeting dealt with both nitrogen and synthetic oil projects, and in the course of the proceedings Ruhl offered his own detailed analysis of the situation. Significantly, Bütefisch pointed out that ‘resolving problems encountered in overseas projects requires a rigorous exchange of ideas, and therefore meetings like this should be held with increasing frequency.’50 Since the marketing of processes and equipment to Japan represented I.G. Farben’s first such attempt outside Germany, the firm’s dealings with Japan amounted to a test case for its international operations in general. Ruhl’s view was that I.G. Farben’s failure to obtain customers for its hydrogenation process was due mainly to the fact that IHEC had yet to determine fixed licensing fees for such operations. In fact, Ruhl had used his own discretion in determining a price quote for Ogura Oil and shifted part of the licensing fee into the quote for equipment. Ruhl felt that the Japanese usually resisted the idea of paying licensing fees as a matter of pride. At the same time, Ruhl noted that the Japanese were often perfectly willing to pay higher prices for equipment. He cited the Japanese navy as an example. Ruhl stressed the need for IHEC to decide on fixed licensing fees as

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soon as possible. I.G. Farben executives agreed with Ruhl’s comments, and Bütefisch proposed that a meeting be arranged with IHEC to deal with the problem. The participants then turned to the problem of the exchange of technical expertise. Some time earlier, Ruhl had suggested a limited exchange when relatively small-scale operations, such as those for Ogura Oil, were involved. Based on Ruhl’s suggestion, I.G. Farben had submitted a plan to IHEC in which Ogura Oil would be given exclusive rights to I.G. Farben’s processes in Japan.51 The participants now squarely faced this issue and discussed how to avoid sharing expertise altogether, as well as how to share it on a limited basis. Bütefisch suggested that an agreement between I.G. Farben and Ogura Oil which did not provide for a mutual exchange of technical information might be acceptable as long as Ogura Oil promised, on acquiring production rights, to shield that information from third parties. But in any case, he pointed out, the process Ogura Oil would acquire was the small-scale gasification process, not the liquefaction process which I.G. Farben considered much more sophisticated. An additional source of concern to those at the meeting was that, with the establishment of Imperial Fuel Industry in January of 1938, any expertise provided to Ogura Oil might be passed on to other companies through this new institution. Ruhl himself discounted suggestions that the Japanese might be planning to develop their expertise through small projects like Ogura Oil’s and thereby achieve their seven-year goal of 50 percent oil self-sufficiency without paying for the rights to any particular processes. His position reflected his first-hand experience selling the know-how of the Haber-Bosch process in Japan. At the end of the report on nitrogen projects, delivered at the meeting, Ruhl remarked that ‘the Japanese mentality is always in quest of something new, and it seems to matter little whether the “new” thing is really superior to the older one or not.’ He said also that he had no doubt that we will get many orders for hydrogenation equipment, as soon as the Japanese realize that, having started to do business in Japan, we ourselves appreciate the importance of substantive rather than superficial dealings with potential customers.52 In any event, the misgivings of the other participants at the meeting dampened Ruhl’s confidence in this regard. A further problem involved the provision of guarantees. Guarantees could be provided for a specific amount of production output or for a specific degree of product quality – but both output and quality presented difficulties. If output was to be guaranteed, the amount would have to be underestimated in case the level guaranteed could not be attained. Quality could not be guaranteed without a very thorough analysis of the raw material used, but even then, the quality of the product

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could deteriorate in storage. The participants decided to adopt output guarantees and to levy a fee on any output beyond what was guaranteed. Ruhl opposed this approach on the grounds that the Japanese authorities would not countenance a transfer of license-associated fees through unrestricted foreign exchange, and proposed that I.G. Farben guarantee the same quality of output as that of the gasoline refined from cracked light oil in the United States. The participants decided finally that, because of the establishment of Imperial Fuel Industry, I.G. Farben would insist that Ogura Oil give it exclusive licensing rights in Germany and elsewhere for any technological developments made through the new company. I.G. Farben officials knew that Ogura Oil was in contact also (via Mitsui Bussan) with the US chemical engineering company M.W. Kellogg Co. It was decided therefore to recommend that Ogura Oil use catalytic cracking facilities built by Kellogg, should it reject I.G. Farben’s terms.53 On July 1, another meeting was held to prepare for negotiations with IHEC, and to review what was discussed at the aforementioned meeting and two subsequent meetings. Bütefisch’s proposal for negotiations was also considered.54 The specific topics handled at this meeting included licensing fees, equipment costs, technical data exchange, product guarantees, and the current state of business operations in Japan. The first three topics required the cooperation of IHEC. Ruhl, who had cited IHEC’s failure to establish fixed licensing fees as one factor behind I.G. Farben’s lack of success thus far, hoped for very low fees in view of the near certainty that I.G. Farben would have to cut its price in the course of negotiating with Japanese customers. Ruhl’s position was generally accepted, and it was decided to seek IHEC’s agreement in this area. It was decided also to ascertain IHEC’s position concerning the inclusion of part of the actual licensing fee in the equipment price as a way of dealing with the problem of national pride – a problem Ruhl considered had led the Japanese navy and other organizations to resist buying licenses (see Chapter 4, Section II, 5). This meeting also dealt with the terms under which licenses would be provided. IHEC’s Nieuwenhuis had earlier quoted 3 million yen for a facility capable of annual production of 50,000 tons of oil. Ruhl considered the figure, which he assumed was a lump-sum general licensing fee, exorbitant for a country whose Seven-Year Plan called for annual production of 2 million kiloliters.55 In fact, it seems likely that when Kajiki Sueto of the Ministry of Commerce and Industry met with Ruhl in February 1938, he had objected strongly to Nieuwenhuis’s quote. Ruhl himself had earlier offered a compromise plan calling for a lump-sum licensing fee to cover all operations in Japan, plus an additional fee based on actual output. But, in May 1939, he recommended fees for each separate project and suggested a quote of 1.5 million yen for Ogura Oil.56 At the present meeting, Ruhl repeatedly stressed this latter approach. Clearly, he considered the notion of offering a general license to Japanese customers financially unwise and believed that more profit could be made in dealing

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with small operations like Ogura Oil on an individual basis. He foresaw no major problems in arriving at price quotes for equipment and suggested that I.G. Farben simply calculate the cost of the equipment, shipment, and installation, and then add a commission of about 5 percent. This meeting dealt with other issues as well. Based on discussions thus far, it was decided to abandon both Ruhl’s proposal for technical data exchange and the plan (also based on Ruhl’s) that was to have been submitted to IHEC. Instead, I.G. Farben returned to its former policy of requiring the exchange of technical information with any contractual partner. The problem of providing guarantees was reconsidered in view of the fact that IHEC’s policy of providing qualitative guarantees was seen as problematic, since so much depended on the quality of the raw material. 3 Coordination with IHEC I.G. Farben held discussions with representatives of IHEC on July 3, 4, and 5.57 Four IHEC officials took part, along with eight I.G. Farben officials, including Pier and Ruhl. A licensing schedule for Japan and Manchuria was determined first. Fees were to vary, depending on whether coal, tar, or gas oil was used, and were to be adjusted according to production levels.58 It was agreed also that technical information would have to be shared and that cross-licensing would be accepted. No agreement was reached on the issue of guarantees, but the two sides did agree to continue discussions in this area. The agreement on a licensing schedule was especially important (particularly as far as Ruhl was concerned) and greatly facilitated I.G. Farben’s ability to operate. Thus, in July 1939, I.G. Farben was ready to continue with the attempt to see the Ogura Oil project through to fruition despite the opposition already encountered from the Japanese navy. This was just before the US abrogated its commercial treaty with Japan and less than two months before Nazi Germany invaded Poland. IV CONCLUSION 1 Reasons for failure I.G. Farben expended a good deal of effort in trying to license its production process and export its equipment to Japan, but in the end it was unsuccessful. Having examined the steps taken by I.G. Farben, and bearing in mind the firm’s own analysis of the situation, it is possible to ascertain some of the reasons for the lack of success. We have already seen some of the problems I.G. Farben faced, namely: the lack of cooperation from IHEC; the inflexible nature of the firm’s own negotiating tactics; and the opposition of the Japanese navy.

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IHEC certainly served as a check on I.G. Farben’s freedom of action – that was most apparent in the negotiations with South Manchurian Railway. IHEC, however, thereafter became more interested in licensing Japanese firms and continued to differ with I.G. Farben on how licenses should be given. This disagreement had the effect of increasing the cost of licenses, although it did not make their acquisition or sale impossible. Similarly, IHEC took a cautious approach in shipping equipment to Japanese customers, noting that British and US steel producers would stop shipping to Japan if they lacked the support of the major oil companies, specifically Royal Dutch Shell and Standard Oil (NJ).59 In both of these areas, then, IHEC affected I.G. Farben’s operations. On the other hand, IHEC had no influence on German equipment manufacturers, and whatever checks IHEC applied to I.G. Farben, at least as of the middle of 1939, it had not completely frustrated the firm’s endeavors to function in Japan. This was markedly different from the situation that was to develop in 1940 and 1941.60 The terms which I.G. Farben offered to customers in Japan were prohibitive. To Mitsubishi Mining, for example, it presented a quote for equipment of almost 22 million yen, which was much more than Mitsubishi Coal Liquefaction’s share capital of 20 million yen. To make the situation worse, Japan’s foreign exchange reserves began to decline quite rapidly after 1937. In fact, government officials only allowed Ogura Oil enough access to foreign currency to cover part of its project. Under the circumstances, I.G. Farben’s high quotes must have dampened the enthusiasm of potential clients. But they had not reached the height high enough to dissipate interest altogether. This is clear, for example, in the recollections of Ogura Oil’s top manager, Nakahara Nobuhei. Also, it should be recalled, I.G. Farben was fully prepared to help finance the operations of clients like the North China Project and Nissan Chemical. Another factor which influenced I.G. Farben’s prospects in Japan was the opposition of the Japanese navy, which had already done some research into hydrogenation processes. H. Ahrens’ Hermann Bosch had perceived early on that for the navy to acquiesce over the purchase of technical information on I.G. Farben’s process would in effect be to admit its own failure in this area.61 In fact, the navy’s opposition doomed Ogura Oil’s plans, as well as those of the Japanese army. The Synthetic Fuel Production Law had guaranteed prices and markets for producers, which meant that the Government would be the major consumer of the product. Yet, even if the synthetic oil producers were successful, the guarantee would be meaningless as long as the navy – as the greatest source of demand – remained opposed. The navy was able to influence even Imperial Fuel Industry’s decisions on which companies would receive investment and loans from funds at its disposal. Thus, the navy decisively affected whether Ogura Oil and others would

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obtain funding and outlets for their products. In this context, then, the enactment of laws in 1938 designed to encourage synthetic oil production actually had the effect of reducing the chances for success of firms like I.G. Farben. Until the middle of 1939, it was the opposition of the Japanese navy, much more than IHEC’s position or the terms that could be offered to clients, that most adversely affected I.G. Farben’s prospects in Japan. 2 Epilogue: illusory business talks One final matter calls for consideration. Unlike Japan, Germany was able to achieve large-scale production of synthetic oil. By the beginning of the Second World War, production based on the Bergius or I.G. process and on the Fischer-Tropsch process had reached an annual level of 1.47 million tons. In 1939, Germany had an oil selfsufficiency rate of 35 percent; half of this domestic oil was synthetic.62 By contrast, in 1944, the year its synthetic oil production peaked, Japan produced a mere 17,000 kiloliters of synthetic oil, using hydrogenation and the Fischer-Tropsch process; even with the addition of oil produced by low-temperature carbonization, the figure rose only to 111,000 kiloliters.63 Quite apart from profit considerations, synthetic oil production was clearly a technological failure in Japan. This striking disparity between Japan and Germany undoubtedly reflected a substantial qualitative difference in their respective technologies. We cannot, of course, say whether Japan might not have been more successful had the I.G. process been introduced to, and adopted by, Japanese producers. Quite possibly the results would have been as haphazard as they proved to be with the Fischer-Tropsch process. Nor can we say whether war could have been avoided had synthetic oil production been a success. At any rate, given the technological gap between Japan and Germany, the failure to introduce the I.G. process, the most advanced hydrogenation process then available, reflects a failing on the part of those Japanese officials responsible for overseeing developments in this area to estimate their own technological level correctly. One such navy official later on concluded with regret: There were many attempts to sell foreign hydrogenation technology in both Japan and Manchuria. The army and the president of South Manchurian Railway, Matsuoka, were both enthusiastic about the prospect. But the navy’s confidence in the level of the technology it had developed and the exacting terms attached to import contracts prevented any agreement in this regard, and no new technology was ever introduced. I feel that we could have done well in this area relatively quickly had we just accepted the terms offered, brought in the new technology, and used it as a guide for improving the technology we already had.64 My analysis has covered the period through the summer of 1939. In the period which followed, which was the focus of Chapter 4, US restrictions on oil shipments

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to Japan steadily tightened, until shipments were prohibited altogether in August 1941. As the situation deteriorated, the Japanese army once again became interested in the I.G. process.65 At the same time, however, the US and Great Britain used IHEC to increase the restrictions on Japan. IHEC made it clear that it would sanction neither the sale of equipment nor the sale of licenses to the Japanese. From December 1941 through 1943, the Japanese army again lost interest in acquiring the I.G. process; oil supplies from South-East Asia were more plentiful than had been anticipated, and the nation built up a substantial oil reserve.66 But interest was revived in the spring of 1944 as the tide of war increasingly turned against Japan and oil supplies from South-East Asia were cut off. At this point, the army began discussions, through Mitsubishi Shoji, with I.G. Farben. In March 1944, it received a quote from I.G. Farben for facilities to produce annually 100,000 kiloliters of aircraft fuel and 24,000 tons of liquefied gas. The quote called for Japan to put up 29.175 million reichsmarks and I.G. Farben to contribute 25.04 million reichsmarks for an operation that would use the liquefaction and gasification processes.67 Over a ten-month period, negotiations took place among I.G. Farben representatives, Kinoshita Toshisada of the Army Fuel Depot, and the Berlin office of Mitsubishi Shoji. A contract was signed on January 11, 1945 stating that the army was to pay I.G. Farben 18 million reichsmarks.68 It is apparent from I.G. Farben documents that pressure from the German Government had in effect forced the firm to ignore IHEC and the restrictions imposed by that organization.69 The contract with the army was I.G. Farben’s first contract in Japan for its hydrogenation process. Thereafter, negotiations started to prepare for plant construction in Japan. Negotiations took place at Pier’s technical office in Heidelberg. With the approach of the Allied forces, however, this office moved its documents and blueprints to central Germany on March 24.70 The Nazi Government surrendered unconditionally fifty days later.

8 Upstream transfer of the Shimadzu process

Large German companies, such as Vereinigte Stahlwerke, Krupp, Mannesmann, Rheinmetall, I.G. Farben, Kalichemie, Schering, E. Merck, AEG, and Carl Zeiss, embarked on and developed vigorous sales operations through offices acting on their behalf in Japan; I.G. Farben, for example, had an affiliate company incorporated in Japan for its sales operations. The most noteworthy example of direct investment by a German manufacturing firm in Japan was the founding in 1923 of Fuji Denki Seizo (Fuji Electric Manufacturing) as a joint venture by Siemens and Furukawa Denki Kogyo (Furukawa Electric Industry). Also, numerous trading companies based in Hamburg and Bremen gained a foothold for their activities in Japan. Most representative of these was C. Illies & Co. (see Chapter 1, section III, 3; Chapter 3, section I, 1; and Chapter 9). On the other hand, Japanese direct investment in the German manufacturing sector was nonexistent (see Chapter 1, section III, 3). In contrast to the situation today, there were at that time virtually no manufactured goods that could be exported from Japan to Germany. The same was true of technology also. Consequently, there was a considerable imbalance in Japanese–German relations, both in the visible trade account and also in direct investments on the eve of the Second World War. Are we correct, then, in asserting that, with the exception of trading companies and banks, there had been no inroads made into the German market by Japanese companies? This would appear to be incorrect, since there is at least one example of Japanese direct investment in Germany. This is the case of Ostasiatische Lurgi (Ost Lurgi), a limited-liability joint venture located in Berlin. The firm was established in 1926 by Mitsubishi Goshi (Mitsubishi Ltd), based in Tokyo, and two German metallurgical– chemical firms located in Frankfurt am Main, namely: Metallbank und Metallurgische Gesellschaft (Metallgesellschaft) and Deutsche Gold- und SilberScheideanstalt vormals Roessler (Degussa).1 This joint venture aimed at the German commercialization of Japanese technology, rather than at direct production in Germany, and it may have been the only case of Japanese direct investment, banks

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and trading companies excepted. The venture actually proved unsuccessful and had to be liquidated just a few years after its establishment. It retains a certain significance, however, in view of its status as the sole example of Japanese direct investment in Germany. Moreover, it included, as we shall see, a trial attempt at technological–industrial cooperation.2 Let us examine this case, based on a consideration of the following issues: • What exactly were the details of the background, motivation, and process involved in the establishment of the joint venture? • What actual activities and operations were undertaken by the joint venture and to what end? • What were the facts regarding the background, motivation, and process involved in the liquidation of the joint venture? • Finally, what effect did this case have on German industry, and what implications did it have for the future? I TECHNOLOGICALCOOPERATION ONAN EQUAL FOOTING: THE ESTABLISHMENT OF OST LURGI 1 Mediation of Fritz Haber and conclusion of a preliminary agreement In the summer of 1924, Fritz Haber, inventor of the Haber-Bosch process, visited Japan at the invitation of Hoshi Hajime, president of Hoshi Pharmaceuticals. Hoshi contributed large sums for the promotion of German science and, consequently, even in the anti-Japanese atmosphere prevailing in Germany’s post-First World War economic circles, he was highly respected by German industrialists. Haber, for his part, thought highly of the standard of Japanese technology and had originated a number of proposals for scientific and technical–industrial cooperation with Japan.3 Before his departure from Japan on December 20, 1924, Haber, acting as a representative of Metallgesellschaft, and Okumura Masao, representing Mitsubishi Goshi, signed two preliminary agreements in Tokyo. These agreements were seen later as constituting an open contract. The content of the agreements concerned technical cooperation for chlorate explosives and tungsten technology, respectively. Regarding the former, Mitsubishi agreed to conduct a research survey on the potential for commercialization in the Far East Asian region of Metallgesellschaft’s relevant inventions and ideas; in return, Metallgesellschaft promised its support of this survey and a 20 percent participation in the form of investment in kind and technical investment for the establishment of a joint-venture firm, once the commercialization phase had been entered. This latter agreement concerned the commercialization in Germany of Mitsubishi’s tungsten technology, and the conditions were the same, with the positions of the two parties being the reverse of those adopted in the former agreement.4

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Mitsubishi Goshi was affiliated to powerful heavy-industry firms and therefore was extremely interested in the introduction of technology from Germany; but, the company was keenly interested also in the export of manufactured goods and technology.5 Metallgesellschaft’s experience of this kind dated back to before the First World War, when it had licensed the manufacturing technology for sulphuric acid and calcium super-phosphate to Sumitomo Besshi Seidosho (Sumitomo Copper Refinery), and was actively interested in the export of technology to Japan.6 Haber’s signing of the open contract on behalf of Metallgesellschaft presupposed his close contact with the company, and, in fact, Haber was appointed a member of the supervisory board of the company in 1929. Haber’s liaison with Mitsubishi was effected by his former assistant Tamaru Setsuro and Baron Matsuoka Kinpei. Haber placed particular trust in Matsuoka’s influence with Mitsubishi and saw him as the cornerstone of the cooperative proposals.7 One of the particular features of this open contract was the caution evident in the stipulation both of technology transfer through licensing rather than direct investment and of the establishment of a joint venture only if commercialization of the project proved feasible. A second characteristic was that the parties were actively motivated to pursue licensing. A third aspect was the consistent application of the principle of reciprocity for the transfer of technology between the two parties. The idealistic pro-Japanese bias of Haber, as initiator of the open contract, was particularly evident in this third aspect. At the time, however, a strong anti-Japanese sentiment prevailed in German industrial circles due to the belligerent relations between the two nations during the First World War and the resulting position of Japan as one of the Allied Powers entrusted with the extraction of reparation payments. Although on the Japanese side there was increasing enthusiasm for German technological guidance, among the Germans there was a widespread mistrust of the Japanese as industrial spies. As is evident from the I.G. Farben’s Japan strategy for synthetic dyestuffs and nitrogenous fertilizers, technology could be used as a strategic industrial weapon (see Chapters 2 and 6). In such an ethos, a contract which even provisionally linked two such mammoth concerns through the mediating idealism of Haber is noteworthy. Moreover, this coincides with the opening of discussions between the German and Japanese Governments for the drawing up of a new commercial treaty. 2 Conclusion of a formal contract The open contract received the approval of Metallgesellschaft’s management, but remained provisional, and discussion of a number of details was required. Metallgesellschaft seems to have drawn up its draft proposal for the formal agreement by June 1925,8 and there was frequent correspondence up to the end of that year

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between Metallgesellschaft and the Berlin office of Mitsubishi Shoji (Mitsubishi Trading) in this regard.9 Haber continued his sideline activities after his return to Germany, writing to Matsuoka in June and July, and meeting with Alfred Merton, the chairman of the supervisory board of Metallgesellschaft.10 The formal contract was signed in Frankfurt am Main almost one year after the completion of the open contract by Merton of Metallgesellshaft, Mertz of Degussa, and Okumura of Mitsubishi Goshi.11 Metallgesellschaft and Degussa had signed a joint-profit contract (Interessengemeinschaft) in 1922, and their close relations as of that date were evident here in their dual signatures to this document. The contract comprised fourteen articles. Throughout, the preliminary agreement on cooperation, just discussed, was referred to as an ‘open contract.’ The more noteworthy provisions and stipulations of the fourteen articles are summarized below. Article 1 stipulated that the joint-venture companies in Germany and Japan, respectively, should be set up within one year. This referred to Ryoyo Kogyo (Ryoyo Enterprise) of Tokyo and Ost Lurgi of Berlin which, in accordance with the open contract, were to be established to exchange inventions and ideas of mutual interest, as well as to exploit and commercialize any other general ideas and inventions available in the two countries. Article 2 stipulated that Ryoyo Kogyo was to have a capital of 6,000 yen and Ost Lurgi, of 10,000 reichsmarks (equivalent to 6,000 yen), that the participation rate was to be 50–50 between Mitsubishi and the two German companies – Metallgesellschaft and Degussa – with the two German firms participating on an equal basis.12 Article 3 set a credit line for the Japanese side (Ryoyo Kogyo) and the German side (Ost Lurgi) at 30,000 yen, or 50,000 reichsmarks. Articles 4–14 established the details entailed in the accomplishment of the objectives stated above. Article 4 provided for an evaluation period to be accorded to both joint-venture companies after the transfer of ideas and inventions had taken place. During this time, each company was accorded a right to monopoly use, and both parties were obligated to cooperate in the evaluation period. Article 5 stated that the German party and the Japanese party had the right to even enquire into inventions not offered to the joint-venture companies. Article 6 established the priorities of the joint-venture firms. Article 8 stated that either party was obligated to exchange with the other any proposals for improvements to inventions and ideas. Article 9 stipulated that Ryoyo Kogyo would have monopoly rights to the employment in East Asia of the mentioned inventions and ideas, and that, similarly, Ost Lurgi would have monopoly rights in Europe and Africa. Article 10 stated that the contract would be valid for ten years, but that a survey would be made four years after its start with provision for its dissolution in the case of failure.

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Furthermore, two attached documents set out the details of the articles of incorporation for the two companies to be established. The features of the abovementioned open contract were retained by the formal contract. The first noteworthy feature of the contract is the caution exhibited by both parties. This is evident in the initial use of licensing, but appears also in the arrangement for the establishment of one company that was to be in charge of the technology transfer, with production to be commenced by a second new company, once the viability of commercialization was confirmed. Since the risk of carrying out direct investment in Japan would have been considerable for Metallgesellschaft, such a policy seems rational (see Chapter 1, section II, 2). This prudence is also quite understandable, given the limited prospect of technology transfer from Japan. A second feature of note is the strong general motivation the contract manifests in relation to the licensing plan, especially in articles 5, 6, and 8. These are the articles stating the right of both parties to enquire about ideas and inventions not supplied to the two joint-venture firms, with the ‘preferred party’ status for technology transfer given to the joint-venture companies; and outlining the duty of both parties to share any measures for the improvement of ideas and inventions with the other party.13 Third, the equal provision of technology on both sides is significant. The transfer of technology generally occurs between a country or area possessing a high level of technology and one with a lower level. The transfer of technology can be analyzed as having three phases: the first phase is a one-way transfer; the second is a phase of vertical or inter-industrial transfer; and the third phase, a horizontal or intra-industrial transfer. It seems fair to say that Japanese–German relations in the 1920s were in the first phase. Therefore, the reciprocity evident in this contract, marked by the establishing of Ost Lurgi, was aimed at the realization of the second and even the third phases. Once again, the idealistic, pro-Japanese spirit of Haber, the plan’s initiator, is apparent. However, private enterprise is not easily spurred on by such a spirit alone. Metallgesellschaft and Degussa were clearly in possession of a certain amount of information concerning the Japanese technology that could be introduced. The contract for the establishment of Ost Lurgi was then signed on March 10, 1926 on the basis of the previously mentioned formal contract,14 with the offices of Ost Lurgi being established inside Mitsubishi Shoji’s Berlin operations. II AN ATTEMPTAT LICENSING UPSTREAM 1 Preparatory evaluations The technology designated for transfer in the preliminary agreement of December 1924 was for Metallgesellschaft’s chlorate explosives and Mitsubishi’s tungsten technology. Later, a number of other items were put forward. In September 1925,

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before the signing of the formal contract, the two parties met in Berlin to discuss and evaluate their proposed items. Tamaru and an employee of Mitsubishi Shoji’s Berlin office (later Mitsubishi Shoji Kaisha GmbH) attended on behalf of the Japanese side. Selection of items was centered on the metal and chemical fields. Aluminum, activated salts, and medical supplies were given as areas to be handled by Ryoyo Kogyo. Ost Lurgi was to handle tungsten and the manufacturing process for lead powder used in battery cells. Behind the choice of tungsten technology lay the fact that this rare metal was crucial to the production of weapons and that the major exporter of tungsten to Germany at the time was China. The aim of Metallgesellschaft was to use Japanese technology to produce tungsten from the Chinese ore. However, they soon realized that there was little hope of achieving this. Also, although Metallgesellschaft itself was not interested in the production process for lead powder, it considered that Degussa might have such an interest. To discuss this, Tamaru made direct contact with Friedrich Kerschbaum of Degussa.15 The Shimadzu process for the production of lead powder was proposed for transfer to Ost Lurgi, and, as it turned out, that was the only proposal that was to be accepted. 2 The Shimadzu process The ‘Shimadzu process’ is the term used worldwide to refer to the production technology employed in battery cells and ship hull paint. It describes the lead powder production process developed by Shimadzu Seisakusho (Shimadzu Works), a major firm located in Kyoto.16 With the outbreak of the First World War, imported manufactured goods were cut off, as was the inflow of foreign technology, and, as a consequence, a number of new industries, especially in the heavy and chemical sectors, were set up. Existing firms also took advantage of the opportunity for technical development and the penetration of new markets. Several such companies were able to overcome the difficulties posed by economic depression and severe international competition. Shimadzu Works was one such firm.17 In May 1915, while still a privately owned company, Shimadzu Works provided this response to the investigation report issued by Japanese naval headquarters: Whereas the annual domestic demand for cell batteries continues to increase, the outbreak of hostilities in Europe has put a stop to the activities of import companies, so that the need for domestic products grows more and more. In response to this situation and in order to achieve a steady expansion of our industrial activities and to enlarge our factory facilities, needed to satisfy a variety

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of demands, we have acquired an area of approximately 10,000 square meters at Tanaka Village, outside of Kyoto City, as a site destined for construction of a battery cell factory.18 With the end of the war, Shimadzu itself was reorganized into a joint-stock company.19 Following the interruption of imports needed to power wireless telegraphic communications, Shimadzu’s GS Battery, developed at the end of the nineteenth century and given its trade name in 1908, sold very well (Tudor, a German company in Hagen, had until then exported the necessary components). Shimadzu Works embarked on an expansion of its battery department when it received a request from the Japanese navy for supplies. With the support of Mitsubishi Goshi and Okura Gumi (Okura Ltd), Shimadzu established Nippon Denchi (Japan Storage Battery) in January 1917, thereby turning its battery department into an independent company. In September. 1917, however, the parent company of Shimadzu Works along with other heavy-industry firms had to face the challenge of the resumption of imports from the US and Europe, and of increased international competition. In response, the company’s managing director, Shimadzu Tsunesaburo, was dispatched to the US and to European countries in 1920 to secure general agency contracts with more than ten manufacturers of scientific instruments. Furthermore, a branch office was opened in Berlin in 1923, providing a foothold for imports of manufactured goods and technology.20 Shimadzu’s countermeasures did not end there, however, and it pursued a policy of securing extra income through the licensing of the Shimadzu process to foreign companies. Shimadzu Genzo, Jr, the president of Shimadzu Works and managing director of Nippon Denchi, had turned down the proposal for introduction of technology from the British firm Stone and from France’s Tudor, despite their strong influence in Nippon Denchi. Instead, he directed the company’s efforts toward the development, independently, of a lead-powder production method, which was subsequently named the ‘Production Method for Positive Response Lead Powder.’ This was a simple and inexpensive method of industrial production, whereby a lump of lead was placed in a revolving iron drum while air was blown in. The ensuing oxidation of the lump of lead, and its breakdown into lead particles by the friction of the revolving drum, produced the positively charged lead powder. A production method for battery cells and anti-rust paint was also developed, the latter being developed by Negishi Makoto.21 In addition to patenting various processes in Japan, Shimadzu registered patents in the major foreign countries. According to the documents received by Degussa from Nippon Denchi on February 17, 1926,22 beginning with the registration of a patent in France in September 1921, from 1922–5 the patents completed for each country numbered: • Germany, 1; • Britain, 6;

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• • • • • •

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France, 7; Italy, 7; Belgium, 2; Sweden, 2; Canada, 2; and Australia, 6.

There were enquiries also concerning the implementation of patents for the Shimadzu process in the US, Britain, and France, attesting to the strong international interest in this process. At this point, however, Shimadzu became entangled in a patent dispute in the USA.23 In Germany, meanwhile, a sole patent – for anti-rust paint material production – was pushed through. Although an application for a patent for the basic process of lead-powder production was made in May 1922 under the title of ‘process for producing metal powder,’ this had been contested by four parties including the dominant battery manufacturer, Tudor, and the matter was still under review at the time in question.24 It was against this background that the Shimadzu process was introduced to Metallgesellschaft and Degussa. 3 The attempt to license the Shimadzu process It was Mitsubishi Goshi that acted as the intermediary in the arrangement for the licensing of the Shimadzu process. The relationship between Shimadzu Works and Mitsubishi can be traced back at least to the setting up of Nippon Denchi. At that time, Kato Takeo, the manager of the Kyoto branch of Mitsubishi Bank, was busy with the establishment of Nippon Denchi, in which Mitsubishi had taken an equity stake on the approval of Iwasaki Koyata, the president of Mitsubishi Goshi.25 However, it is without doubt correct to assume that before this, or, at the latest, before the previously mentioned contact made by Tamaru with Degussa, the German firms had already obtained information concerning the Shimadzu process through Haber. While Haber was staying in Kyoto in November 1924, at the invitation of Kyoto University, he had paid a visit to Shimadzu Works and actually observed the production of lead powder; he appears to have had a high opinion of the technological level of the Shimadzu process.26 In fact, Nippon Denchi and Metallgesellschaft had agreed to draw up an option agreement with regard to the Shimadzu process at the signing of the above-mentioned preliminary agreement in Tokyo. Of course, Haber represented Metallgesellschaft on this occasion. It might even have been the case that it was the information concerning the Shimadzu process that had been the real stimulus behind Metallgesellschaft’s decision to enter into a formal contract with Mitsubishi Goshi. Nippon Denchi was very active regarding the licensing, and had made offers of

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licensing through C. Illies & Co. and through Okura Shoji (Okura Trading) in addition to Mitsubishi Shoji. Moreover, it had arranged for an engineer on business in the United States to proceed on to Germany in connection with the licensing.27 Later, at the drawing up of the official contract in December 1925, negotiations held between the two parties were carried out by Haber and Tamaru. It was agreed that the option for the Shimadzu process should be acquired by Ost Lurgi, once it was established. It was further agreed in February 1926 that Degussa was to acquire the option temporarily.28 Following the establishment of Ost Lurgi on March 10, 1926, a contract for the acquisition by Ost Lurgi of the Shimadzu process option was signed in Frankfurt am Main on June 1, 1926. Haber also was present at this meeting.29 During this period, Metallgesellschaft conducted investigations chiefly relating to the patent position, while a technological investigation was carried out by Degussa. Since Degussa’s evaluation took longer than initially anticipated, the original time limit of the end of 1926 for the option contract was extended to the end of March 1927. This new term, in turn, was postponed to the end of September 1927.30 During this period, Nippon Denchi dispatched an engineer to undertake direct negotiations with Metallgesellschaft and Degussa.31 However, Degussa’s final response was extremely negative. Initially Degussa itself may have planned to carry out the commercialization of the Shimadzu process, but probably gave up this plan at an early stage of the evaluation. It then investigated the possibilities of sublicensing. The only party to show interest in the technology as a paint manufacturing process was a certain Werner in Erlangen, on whose patent the Shimadzu process patent was based. Negotiations with him were drawn out, since the parties could not agree on conditions. In the battery field, the German battery industry refused to acknowledge any originality in the Shimadzu process. At this time, the patent application for the Shimadzu process was still under consideration.32 Thus, the attempt at licensing the process was frustrated. Factors involved in this were that the patent rights were still at issue during this period and the lack of commercialization plans on the part of either Metallgesellschaft or Degussa. Ironically, the German patent for the Shimadzu process was granted two years later. Initially, the patent application for the Shimadzu process for the manufacture of lead powder was made under the title ‘process for producing metal powder’ (Verfahren zur Herstellung von Metallpulver),’ but this was changed to ‘process for producing lead powder (Verfahren zur Herstellung von Bleistaub)’ in June 1929, and a second submission for patent registration was made. This application was accepted in November 1929.33 In June 1932, the US Supreme Court pronounced its final verdict and established the patent rights for the Shimadzu process. Following this victory, implementation of patent rights were finalized in the US, Britain, and France; that is, contracts were concluded successively in these countries. Effective rights were accorded to USL

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Corp. in the USA in February 1933, to a company jointly managed by Cookson, Oldham, and other lead-metallurgy firms in Britain in May 1935, and also to Haute Cie. in France in July 1935. In the case of both the British and French firms, the transactions were done via USL Corp.34 The Shimadzu process was, consequently, one of the few successful examples of the export of Japanese technology before the Second World War. Moreover, it was an upstream transfer, that is, from a technologically developing country to an advanced nation.35 However, the attempt to export technological know-how to Germany failed. Leaving aside the obstacles that the patent laws presented, the more formidable obstacles of a technological and cultural nature were too great to overcome. III REVISION OF THE TECHNOLOGICALCOOPERATION 1 Negotiations for revision of the contract As we have seen, Degussa not only gave a negative evaluation of the Shimadzu process, but even seemed to have lost interest in Ost Lurgi itself. This is quite understandable, given Degussa’s view that the only technology that could be imported from Japan was the Shimadzu process. Furthermore, Degussa lost interest in Ryoyo Kogy&333;, the Tokyo agent responsible for the export of German technology to Japan, saying it desired a ‘rethinking of our company’s general policy in these undertakings in view of developments.’ This involved a request for the early withdrawal from the 1925 contract.36 The dissolution of its joint-profit contract with Metallgesellschaft in 1926 and its approaches to I.G. Farben and Henkel & Cie. can be seen in the light of this desire for a general withdrawal.37 Metallgesellschaft also had become skeptical as to the future of Ost Lurgi. This manifested itself in its dissatisfaction over the burden of indirect expenses on the part of the technology supplier.38 However, unlike Degussa, there was no skepticism about the actual contract, and the possibility of licensing to Japan continued to be investigated. Moreover, Mitsubishi expressed dissatisfaction of a different nature regarding the performance of Ost Lurgi, but wanted to continue the cooperation.39 Thus, the scheduling of negotiations for revision of the contract between Mitsubishi Goshi, Metallgesellschaft, and Degussa approached, with global Japanese–German economic relations showing no definite deterioration. Rather the reverse was true, as a new Japanese–German Commerce and Navigation Treaty had been signed in July 1927, taking effect in April 1928.40 In November 1928, in a document sent to Mitsubishi Goshi after asserting the need to revise the contract, Metallgesellschaft gave details of its proposed revision. In this document, Metallgesellschaft gave four reasons that made imperative an

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early revision in contravention of article 13 of the contract, which stipulated a period of six years before the original contract could be canceled: 1. the question of avoiding double taxation; 2. the burden of indirect expenses on the part of the technology supplier; 3. the avoidance of possible competition between the technology supplier and the joint-venture company receiving this expertise; and 4. the question of the approval of Degussa’s request for withdrawal. With regard to the second point of the indirect expense burden, Metallgesellschaft proposed a new ratio for the distribution of the net profit of the joint-venture company as follows: technology supplier, 50 percent, technology recipient, 30 percent, and joint-venture company, 20 percent.41 In a letter dated January 28, 1929, Mitsubishi expressed complete agreement to an early revision of the contract. However, it reserved the right to express comments concerning the proposed details of the revision. Metallgesellschaft pressed for a response and dispatched a draft revision to Mitsubishi.42 In July 1929, Mitsubishi Goshi finally replied – in its draft agreement and explanatory note addressed via Mitsubishi Shoji’s Berlin office. This stated that Mitsubishi recognized Degussa’s withdrawal, and expressed a basic acceptance of the concrete amendments proposed by Metallgesellschaft, hoping to revise only the method of sharing the burden of indirect expenses and the net profit shares for the time being. While expressing its agreement in principle, Mitsubishi was against the technology supplier receiving proceeds from the net profit, on the grounds that it was necessary to strengthen the financial independence of the two joint-venture firms. The draft agreement requested also that future negotiations should be conducted through Mitsubishi Shoji’s Berlin office.43 Mitsubishi Goshi seems to have judged that there was no great disparity between the respective positions of the two parties and was optimistic up to the time of the revision negotiations. This appears to be the reason why it entrusted such negotiations to Berlin and Frankfurt. Events developed differently from Mitsubishi’s expectations, however. Metallgesellschaft reasserted its proposal for the redistribution of proceeds not to Mitsubishi Shoji’s Berlin office but to Mitsubishi Goshi, and also pointed out that it was necessary to clarify the scope of the supply of technology in order to avoid mutual competition. To this, Mitsubishi Goshi replied by emphasizing repeatedly the need to strengthen the financial base 44 of the two joint ventures. Metallgesellschaft replied that it regretted the fact that it had not obtained an agreement to its profits’ distribution proposal, and asked again for a reply concerning the need to avoid mutual competition.45 During the arguing back and forth, Metallgesellschaft had begun to question the need for the continued existence of Ost Lurgi and Ryoyo Kogyo, and had become

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skeptical about the contract itself. This contrasts strongly with the commitment of Mitsubishi Goshi to the continuation of the two joint-venture companies. 2 Conclusion of a new contract On January 27, 1930, Mitsubishi Shoji proposed to Metallgesellschaft that an additional contract be drawn up.46 This resulted in the handing over of negotiations at this point to Mitsubishi Shoji’s Berlin office and Metallgesellschaft, so that they could be continued between Berlin and Frankfurt. Metallgesellschaft had demonstrated in its letter of November 1929 that it was dissatisfied with some basic points of the existing contract and pressed for a fundamental revision of the contract terms. The divergence of opinion of the two parties continued to grow. Nevertheless, Mitsubishi Goshi and, in particular, Mitsubishi Shoji’s Berlin office did not seem to have been sufficiently aware of the gravity of this division and were optimistic about a settlement on the basis of Mitsubishi Goshi’s proposals of July 16, 1929. The protracted negotiations concerning expenses and as yet unrealized proceeds were expressed as division over the question of whether the two companies, Ost Lurgi and Ryoyo Kogyo, should be continued or simply liquidated. However, this turn of events illustrates also a failure to implement the contract itself. On July 21, 1930, an additional contract was finally concluded. Mitsubishi Goshi and Metallgesellschaft signed it and Degussa witnessed the signing. The contract provided for a new system of proceeds’ distribution. After deduction of indirect costs, the technology supplier was to be accorded 55 percent of the remaining proceeds; the technology recipient, 35 percent; and the joint-venture company the final 10 percent.47 Except for this last point, which represented the Japanese view, it is fair to say that the contract conditions were those insisted on by the German party. From this point, Mitsubishi also began to incline to the liquidation of Ost Lurgi and Ryoyo Kogyo. Iino Koji, acting branch manager of Mitsubishi Shoji’s Berlin office, had expressed the view several months’ earlier that liquidation was inevitable.48 On June 6, 1930, Merton, chairman of the supervisory board of Metallgesellschaft, wrote a letter to Okumura of Mitsubishi Goshi. Okumura replied on July 25. In this exchange, the two reconfirmed their intent to cooperate. This was the occasion for a series of negotiations carried out between Tokyo and Frankfurt, which again were directed toward the establishment of a new cooperative agreement. Thereafter, it was through an exchange of correspondence, and not via Mitsubishi Shoji’s Berlin office, that negotiations were undertaken. Degussa was kept informed of their progress by Metallgesellschaft. In July 1930, a final accord was reached, whereby Mitsubishi Goshi agreed to the revised proposal put forward by Metallgesellschaft. Under this agreement, while there was acceptance of the liquidation of the two joint-venture firms before the

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expiry of the contract period, a new contract was to be signed to continue cooperative relations.49 Discussions concerning the conditions of the new contract took place with Mitsubishi Shoji’s Berlin office and, as could be expected, quite some time passed before progress was made. There was even some disagreement as to the responsibility for paying half of the 15 reichsmarks stamp duty costs.50 Negotiations were concluded at the beginning of September 1930.51 Thereafter, the procedures laid down concerning the announcement of liquidation and its acknowledgment were carried out. Details of the new cooperative agreement were finalized by October 1931,52 and on December 28 and 31 an agency contract was signed, by which Mitsubishi Shoji became an agency of Metallgesellschaft.53 3 The liquidation of Ost Lurgi On December 16, 1931, the old contract was invalidated, and Ost Lurgi and Ryoyo Kogyo were liquidated. The balance sheet and income statement of Ost Lurgi were made public on August 31, 1932 and July 30, 1933. With regard to the latter, the figures revealed a profit yield of 226.50 reichsmarks, and total costs plus losses of 226.50 reichsmarks, including expenses of 73.17 reichsmarks, corporate tax of 14.23 reichsmarks, and a transfer for the liquidation appraisal of 139.10 reichsmarks.54 Through their experience of negotiating for more than three years, Metallgesellschaft and Degussa may have realized that the secret to negotiating successfully with Japanese firms had to do with the timing and urgency of the toplevel negotiations. Thus, although the two sides were a little weary and disillusioned, this did not kill the desire to cooperate. Rather, this cooperation drive was modified. In effect, the reciprocity evoked by Haber’s idealism and the overrating of Japanese technology receded, as these were modified in the light of actual experience. The extinction of this idealism thus could not be attributed to the prevailing anti-Japanese mood. Ultimately, the Japanese trading company became the agency for the German manufacturing firm, thus conforming to the common pattern of relations at that time. In light of the technological gap between the German and Japanese sides, a one-way transfer from the former to the latter was only natural. After the conclusion of an agency contract, relations between the two firms continued to improve up until the interruption of contact with the start of German hostilities against the Soviet Union in June 1941. Examples of technology transfer to Mitsubishi-related firms, effected by such affiliates of Metallgesellschaft as Lurgi Gesellschaft für Chemie und Hüttenwesen and Lurgi Gesellschaft für Wärmetechnik, include the Lurgi Aussig process, activated coal, and aluminum technology. In this sense, the attempt at creating affiliate companies was not a failure. A note in the

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Ritsugyo Boekiroku (Records of the Enterprises and Trade of Mitsubishi Shoji) concerning the two joint-venture companies states that though, unfortunately, these did not produce the expected achievement, nevertheless, this experience was continued and furthered in our transactions with Germany concerning machinery and they were not a worthless undertaking.55

IV CONCLUSION Fritz Haber, who visited Japan in 1924, was the initiator of technological-industrial cooperation between Japan and Germany. On the Japanese side, Mitsubishi Goshi took up this idea, while Metallgesellschaft and Degussa responded on the German side. An agreement for cooperation was reached between the two sides with Haber’s enthusiastic assistance, and on this basis joint-venture companies were established for technology introduction to the respective partners. However, this attempt failed. In the case of Ost Lurgi, established in Berlin, the Shimadzu process was the only actual proposal of Japanese technology, but Degussa, which had shown initial interest, reached a negative conclusion on this. Metallgesellschaft’s dissatisfaction with the contract also deepened. As a result, German interest in the contract rapidly cooled. Eventually, the contract was invalidated, and both Ost Lurgi, established in Germany, and Ryoyo Kogyo, set up in Japan, were liquidated. After this, similar attempts at technology transfer from Japan to Germany ceased. A simple observation can be made here regarding the influence exercised by Japanese firms located in Germany. It is clear that as far as the period up to 1945 is concerned, the amount and scope of direct investment from the geographically remote Japan to Germany was limited. Thus, we can conclude that there was virtually no influence. However, if one is allowed to speculate based on the case of Ost Lurgi, we might make the following points. Metallgesellschaft and Degussa, on the German side, would seem to have received the impression that Japanese firms held an exaggerated view of their own technological capabilities, and that the Japanese could be troublesome and difficult negotiators. If such an impression was shared to greater or lesser extents by other German firms, it might have resulted in underestimation of the technological level of Japanese industry among German industrial concerns during the 1930s and even on to the years after the Second World War. It might even have been, indirectly, a factor in the delay of direct investment into Japan by German firms until after the 1960s. In this case, a kind of inertia effect might be perceived to have been in operation.

Part IV Direct investment strategy

9 Giving up control Siemens, Fuji Electric, and Fujitsu

This chapter deals with the Japan strategy of Siemens, the German electrical machinery giant. Originally Siemens was composed of two companies: the electrical heavy machinery specialist Siemens-Schuckertwerke; and Siemens & Halske. Together, in 1938, these companies had 187,000 employees, making them the largest company in the world.1 For comparison, General Electric at the time had 69,000 employees. From a very early stage, Siemens had an international business orientation. Prior to the First World War, Siemens created a worldwide agency network, and in important markets, starting with the US, it established a sales network under direct management as well as beginning local manufacturing. Although its expansion began in Europe and the USA, Siemens subsequently moved into other areas, and it was as a part of this expansion, at the end of the nineteenth century, that Siemens advanced into Japan. Siemens exported a full range of goods to Japan, including electrical products, both heavy and light, via Siemens-Schuckert Denki Kabushiki Kaisha (SiemensSchuckert Electric Co. Ltd, or SSDKK) and other local subsidiaries. Moreover, Siemens embarked on direct investment in Japan, as US and British companies also were doing. In 1923, Siemens established Fuji Denki Seizo (Fuji Electric Manufacturing, in 1984, it formally became Fuji Denki – Fuji Electric) under a joint venture with Furukawa Denki Kogyo (Furukawa Electric Industry). In making direct investments in Japan, Siemens was atypical of German electrical machinery firms. For example, Allgemeine Elektricitäts-Gesellschaft (AEG), a firm comparable to Siemens, formed an agency arrangement with Okura Shoji (Okura Trading), and pursued a policy of exporting rather than direct investment in Japan.2 Robert Bosch (which became a limited company in 1937), although also pursuing international promotion of its proprietary technologies (first low-pressure, then highpressure, magnetic plugs), including to Japan, maintained a policy of licensing rather than direct investment.3 Another company, Felten & Guilleaume Carlswerk, had exported wire rods, electrical wire, and cables to Japan since before the First World War. But although Japan became one of its most important overseas markets, this

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company did not make any direct investments.4 Thus, Siemens’ establishment of Fuji Electric was an unusual case, and it was among the largest direct overseas investments made by a German company in Japan prior to the Second World War (see Chapter 1, Section III, 3). In 1935, Siemens’ joint-venture subsidiary, Fuji Electric, formed a new subsidiary for the production of light electric equipment called Fuji Tsushinki Seizo (Fuji Communication Equipment Manufacturing; the company changed its name to Fujitsu in 1967). Fujitsu’s first products were telephone equipment, especially automatic switchboards. This type of equipment had already been an important component of Siemens’ Japanese operations as early as the First World War. What, then, were the background and strategic reasons for Siemens’ decision to form Fujitsu at this particular time? This question leads us into the history of Siemens’ telephone equipment operations in Japan. Bearing in mind changes in the Japanese public telephone system vis-à-vis demand, the special characteristics of the Japanese market, competitive conditions, the policies of the Communications Ministry, and the response of business to those policies, this chapter will trace the process of strategic decision making in Siemens. I THE PERIOD OF FORCED EXPORT STRATEGY 1 Export strategy before the First World War Siemens, and German electrical equipment manufacturers in general, were secondary players in the manufacture of telephone equipment;5 indeed, Siemens was also second in the introduction of its products to Japan. The telephone was first introduced into Japan in 1877, one year after its invention by Alexander Graham Bell. The first use in Japan was in a 2km telephone line that was erected between the Ministry of Works and the Imperial Household Ministry, and the equipment for this was imported from the USA. However, the first public telephone service did not begin until more than ten years later, with the completion of the Tokyo–Yokohama line in 1890.6 At that time in Japan, Bell- and Edison-type telephones were being copied by the government-owned telegraph factory and others. Subsequently, Tanaka Seisakusho (Tanaka Manufacturing Works, later Shibaura Seisakusho – Shibaura Engineering Works), Meikosha (later Oki Denki Kogyo – Oki Electric Industry) and others were founded for this purpose.7 The Japanese public telephone service and telephone equipment market began to grow around the turn of the century. In response to this, Western Electric, American Telephone & Telegraph’s manufacturing subsidiary, established Nippon Denki (Nippon Electric, or NEC) in August 1898, initiating local production of telephone

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equipment using its proprietary technologies. NEC became a joint-stock company in July 1899, with Western Electric holding an equity share of 54 percent.8 Thus, the leader in direct investment and local production was the USA. By contrast, Siemens established a Tokyo office in 1887, and in 1905 formed Siemens-Schuckert Denki, but it continued to pursue an export strategy. That might have been both because Siemens was a secondary player in the field of telephone equipment and because Japan was considered, both physically and psychologically, the ‘remotest region of the world.’9 At that time, telephone equipment did not constitute a significant part of Siemens’ exports to Japan. In the 1913–14 business year, the value of Siemens’ telephone equipment exports to Japan totaled 1,758 marks, which represented a mere 0.2 percent of Siemens’ total exports to Japan. However, cables (assumed to include both telegraphic and telephone cables) amounted to 205,077 marks, or 19.4 percent of the total.10 In April 1913, Siemens attempted to initiate sales of advanced telephone equipment. According to Fujitsu’s company history: We imported into Japan the first automatic switchboard (Siemens & Halske type [SH type], capacity 100 circuits, actual installation 50 circuits), and as well as installing it in the Tokyo-Tsukiji office of SSDKK, we also demonstrated it to the engineers of the Communications Ministry and other technical centers. At the demonstrations, engineers were very interested in the device, but it was still too early for it: not one of them put it into operation. Moreover, since in the following year the First World War broke out in Europe and Japan entered the war against Germany, SSDKK had to suspend its operations, and the automatic switchboard was forgotten as a matter of course.11 One fact is of great importance in connection with Siemens’ telephone equipment business: namely, that Siemens and Western Electric had concluded an agreement with regard to the division of world markets as well as to technological cooperation. In 1909, Siemens entered into an agreement with Western Electric’s affiliate Automatic Electric Inc. (AEI) for technology cooperation and the division of world markets.12 Following that, in June 1913, intensive negotiations took place between Siemens and Western Electric over patent rights and the division of the world market. Siemens proposed the plan for the division of the markets which is shown in Table 9.1. The main issue was the German market. The point of contention was that Western Electric aimed to build up a certain share of this market, while Siemens wanted to ensure its own monopolistic position. In the end, Western accepted Siemens’ dominance. The result was that Western was guaranteed the North American market, while Siemens was assured the German one; and in Argentina, Brazil, Japan, and Belgium, Siemens acceded to Western’s wishes. The gist of this was that for four years from the conclusion of

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Table 9.1 Western Electric’s market share (%) based on Siemens’ proposal, 1913

Area Argentina, Brazil, Hungary, Japan, Belgium USA, Canada, Mexico, France Austria, Russia Germany

Britain Worldwide

4 years after agreement 90 100 50 0

After 8 years

After 15 years

75 100 50 0

60 100 50 0

3 years after agreement

After 6 years

After 15 years

66 2/3 60

60 50

50 50

Source: Verhandlungen in London zwischen Siemens & Halske bezw. Siemens Brothers, Western Electric Co. und British Automatic Telephone Co., June 14–27 1913, SAA 4/Lf 533 Carl Friedrich von Siemens.

the agreement, Western would be allotted 90 percent and Siemens 10 percent of the markets, and that, subsequently, Western’s share would be lowered. In brief, Siemens decided to recognize Western’s overwhelming dominance in Japan.13 It is unclear whether this agreement was ever really enforced. Even if it was temporarily enforced, in reality, it lost its meaning when the First World War broke out. However, as we will see (section I, 3), the agreement was restored after the First World War, and it came to have a great impact on Siemens’ Japan strategy. 2 Plans for local manufacturing With the outbreak of the First World War, Siemens’ Japanese operations – not limited to telephone equipment – were unavoidably suspended. With the resumption of business at the end of the war, however, its telephone operations underwent a rapid expansion. This expansion is generally dated to the Great Kanto Earthquake of 1923. Although that is generally correct, in fact, Japan’s telephone equipment market had shown signs of expansion prior to the earthquake, and, as a result, Siemens was already reviewing its Japan strategy. Just after the end of the war, Siemens made the decision to initiate local manufacturing in Japan not only of telephone equipment but also of other electrical products. According to the company’s internal documents, Siemens saw opportunities as a result of demand by the Japanese naval authorities, based on their recognition of the technological superiority of the equipment in German warships,

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particularly submarines (see Chapter 1, Section I, 1). A supplementary budget for the 1920 fiscal year was passed by the Imperial Diet that included a plan for the completion of a force of eighty-eight warships. On the other hand, as a result of the Versailles Treaty of June 1919, German companies were subjected to severe restrictions in the manufacture of military equipment. As a result, Siemens began to consider local production rather than exports, and, to that end, it initiated contacts with Japanese companies.14 Since this restriction applied only to military equipment, however, it would have been quite possible to continue with an export strategy for non-military goods. But, in fact, there was another factor that ignited Siemens’ enthusiasm for local production. In May 1920, at an internal meeting in Berlin, Siemens & Halske and SiemensSchuckert came to a basic agreement on local production in Japan and on choosing Furukawa as their joint-venture partner. At the meeting, Siemens & Halske was represented by a certain Grabe from the Werner factory. Grabe announced the favorable result of his factory’s feasibility study on local manufacturing in Japan. He also emphasized the competitive threat from Western Electric. He reported that efforts to limit competition in foreign markets had, up to that point, been ineffective and added: ‘Western is taking a cool attitude toward us at the current negotiations in Switzerland.’15 Above all, he felt that fierce competition would arise in East Asia, concluding: ‘If we want to stay in Japan, the only way is to follow Western Electric’s way, that is, to form an alliance with one of the powerful zaibatsu and manufacture locally.’16 The Werner factory’s major products were telegraphic, telephone, and measuring equipment.17 Therefore, we can probably assume that it included telephone equipment as a target for local manufacturing. Support for this is to be found in Grabe’s reference to the negotiations with Western. This is a reference to the market division and technology cooperation agreement mentioned above (see section I, 1) and to which we will return presently. Another fact is pertinent. In June of the same year, Siemens-Schuckert’s overseas business division headquarters (CVU) sent a letter to Siemens-Schuckert Denki in Tokyo, reporting on the movements of Kajiyama Hideo, who had been sent by Furukawa to Berlin. The letter commented as follows: From the conversation with Kajiyama, we learnt that, contrary to expectations, Siemens will not be able to participate in the newly established Furukawa Electric Industry, and it will therefore be necessary for us to found a new company. This company is also expected to manufacture telephone equipment. We learnt from Kajiyama that Furukawa has established a telephone equipment plant in the Yokohama electric wire factory, and the manufacturing plan is in progress.18 Whether this meant that the local manufacturing plan would proceed under Siemens’ leadership or that Furukawa would be responsible is not altogether clear.

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In any event, it is clear that Siemens wished to undertake local manufacturing of telephone equipment, and that a plan existed to that end. This indicates that there was growth potential in the Japanese market even before the Great Kanto Earthquake. In particular, from a local point of view, telephone equipment and parts were a promising business, and, naturally, the idea of local manufacturing was appealing. Even from the perspective of Siemens’ headquarters, as the above-mentioned statement of Grabe makes clear, this perception was to some extent shared, at least at the beginning.19 3 The market division and technology cooperation agreement with Western Electric Siemens’ desire for local manufacturing of telephone equipment did not, however, result in a concrete strategy: the company continued to rely for the time being on exports. Why did it not pursue a concrete local manufacturing strategy? The answer to this question lies in the agreement with Western Electric for division of the Japanese market and technology cooperation. As we saw in section I, 1, Siemens had concluded a market division and technology cooperation agreement with Western Electric for the telephone equipment business prior to the First World War. After the war, in June 1921, the two companies renewed their agreement. Although the original of this agreement cannot be found in Siemens’ archives, some documents remain that allow us to guess at its contents. According to these documents, the gist of the renewed agreement as it related to the Japanese market can be stated as follows. 1. The Japanese market would be divided until the end of 1925 based on a 10 percent share for Siemens, with 90 percent for Western Electric. From 1926, it would be possible for Siemens to increase its share. However, there were no specific sanctions in the event of an excess share being achieved. 2. Provisions were made for technology cooperation, including cross-licensing. 3. This agreement was recognized as a part of the two companies’ global cooperation and would remain in effect until the end of 1935.20 We should see this renewed agreement as basically following in content its pre-war predecessor. The following passage from Nippon Denki Kabushiki Kaisha 70 nenshi (The 70-Year History of Nippon Electric Company)21 corroborates the existence and contents of this agreement: On 1 June 1921, a contract was concluded between WE [Western Electric] and Siemens & Halske AG of Germany on the patent licensing and sales of telephone

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equipment. According to the agreement, the companies could mutually exchange patents for telephone equipment free of charge, and they agreed to maintain their market shares of the Japanese market, with WE taking 90 percent and Siemens 10 percent. According to a contract signed on December 20, 1921 between WE and NEC, a subsidiary of Western Electric, the same agreement was extended to NEC, and so the way was open for NEC as well as for WE to use the patent for Siemens’ H type [SH type] switchboard equipment for production. And NEC was able to realize a 90 per cent share of the Japanese market together with WE. Incidentally, the company history of Fuji Electric and Fujitsu makes no mention of the contract between Siemens and Western Electric, although an official of Fuji Electric refers to the agreement in his memoirs.22 The parties concerned in Furukawa’s negotiations with Siemens could not have been unaware of this contract: at least some of Furukawa’s management had been informed (see section I, 5). One can point to a number of factors in explaining Siemens’ motivation for entering into the agreement with Western Electric. 1. After the First World War, the position of German companies, which manufactured one-third, and exported one-half, of the world’s electrical machinery before the war, was threatened by the rapid rise of newly industrializing countries during the war. With Germany’s defeat, German companies lost many overseas assets such as sales networks and foreign patents, and they suffered the loss of foreign markets, difficulties in raw materials procurement, and financial turmoil.23 Therefore, in the case of Siemens, which had concluded pre-war market division and technology cooperation agreements, it was quite natural that it should renew them in similar forms. 2. Moreover, Siemens did not rate the growth potential of the distant Japanese market as being very high, and it quite reasonably saw the political and economic risks of direct investment in Japan as too great. Japan had been an enemy nation, and there may therefore have been a psychological barrier posed by lingering bad feeling from the so-called Siemens affair – a military procurement scandal that brought down the Yamamoto cabinet in 1914. Thus, Siemens was not aiming for a significant increase in market share, but was resigned to accepting 10 percent. And, indeed, from that point on, Siemens’ Japan strategy and actions were conditioned by this agreement. Under the agreement, Siemens was limited to exports to the rapidly expanding Japanese market. Siemens hesitated also to make direct investments, because it feared that under the terms of the agreement its technology would flow to Western Electric or its subsidiary, NEC. In short, as long as it was constrained by this agreement, Siemens was forced to

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accept relegation to a minor status in the rapidly expanding Japanese market, whether Siemens chose exporting or direct investment. And, indeed, that is what happened. Ultimately, it is clear that Siemens underrated the potential for expansion of the Japanese market. 4 The joint-venture plan and the telephone equipment business At the same time as, at the headquarters’ level, Siemens was negotiating its agreement with Western Electric, negotiations also were progressing toward the establishment of a new joint-venture company with Furukawa of Japan.24 On June 1, 1921 – by a strange coincidence, the same day that the agreement with Western Electric was signed – a business cooperation contract (Vertrag in the German text and ‘memorandum’ in the Japanese text) was concluded in Tokyo between Siemens and Furukawa Electric Industry. In the first article of this contract or memorandum, the products to be manufactured and sold by the new company were enumerated. These were: ‘Electric machinery, electric motors, transformers, regulators, distributing boards, tools for electric apparatuses, electric measuring equipment, calibration equipment, searchlights, telephone equipment, telegraphic instruments, signals, medical equipment, water volume measures’ and other electric machinery and apparatuses. In this list, the words ‘telephone equipment’ (Telephon-Apparate) are clearly stated.25 On the one hand, the agreement with Western Electric included major restrictions on Siemens’ direct investment in telephone equipment. On the other hand, however, telephone equipment is clearly stated in the agreement with Furukawa Electric Industry as a business objective of the new joint venture. As a goal for Siemens, this was clearly contradictory or, at least, inconsistent. How did this situation arise? We can infer that Western Electric was also aware of this point and issued a warning to Siemens’ headquarters.26 It is unclear whether Siemens’ headquarters was aware of the point before this warning. In any event, just before the signing of the agreement with Furukawa in Tokyo, Siemens’ headquarters telegraphed to Hermann Keßler, who was negotiating on its behalf in Tokyo, to remove telephone equipment from the list of business objectives. The reason was that the contract with Western Electric presented an obstacle. However, this directive did not arrive in time, and Keßler signed the agreement as Siemens’ sole representative.27 It is clear from the above details that this discrepancy was the fault of Siemens’ headquarters. Keßler, in Tokyo, had not been informed of the agreement with Western Electric. The only personnel in a position to know the details of both agreements were corporate headquarters’ staff. A letter from Western Electric sent in the New Year stated that the inclusion of telephone equipment in the activities of the new company, according to the ‘memorandum’ with Furukawa, was ‘a gravely difficult and major problem.’ Moreover,

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in this letter, Western Electric made it clear that it attached considerable importance to the Japanese market, and thus would not be willing to amend Siemens’ contractual obligations regarding the market. Therefore, it stated, the only solutions open to Siemens were either to make the new company an ‘associated company,’ or to remove telephone equipment from the list of the new company’s business activities – ‘otherwise this would be in direct conflict with our interests.’28 In fact, the agreement with Western Electric did not prohibit direct investment or local manufacturing. However, the details of the agreement unmistakably placed major restrictions on such activities. This was an advantageous provision for Western Electric, and thus it was probable that the agreement with Furukawa represented to Western Electric something of a betrayal. 5 Revision of the memorandum Immediately after signing the agreement with Furukawa, Siemens’ headquarters moved to amend it. Of course, suddenly requesting the removal of telephone equipment from the list of business activities in the newly signed agreement was hardly a business-like act. However, since the agreement with Western Electric was a part of the global market division agreements, it could not easily be revoked, and thus Siemens had no choice but to seek the revision of the agreement with Furukawa. Siemens sent a letter to Furukawa stating its intention in September 1921. A reply arrived in the form of a letter from the vice-president of Furukawa Shoji (Furukawa Trading), Yoshimura Manjiro, in December of the same year. Yoshimura’s letter raised several issues. The first concerned the amount of capital investment by Siemens; the second confirmed the goals in establishing the new company as well as Siemens’ wishes. The third point dealt with export destinations, the fourth with automatic switchboards and other telephone equipment; and the fifth dealt with the range of products the new company would handle. In the section on telephone equipment and automatic switchboards, Yoshimura talked of Furukawa’s surprise and perplexity as well as its desires in regard to telephone equipment. A portion of the original text best conveys the nuance: You state that you are not quite free to aid us in the manufacture of large manual switchboards and automatic telephone apparatuses under your agreement with Western Electric Co. of America and you take it granted [sic] that we are not interested in the latter and therefore no difficulty will arise on this part. But until received your letter [sic] we have never been informed by you of this agreement which gives a vital effect upon our present enterprise and we were much surprised. Besides, it seems to be a misunderstanding on your side to say that we are not interested in the automatic telephone apparatus. As you know, we were primarily interested with [sic] weak current line and already established the factory in

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Yokohama and are ready to manufacture the telephone and other weak current apparatuses. Therefore, if you exclude the automatic telephone apparatus and large manual switch boards, that is a great loss for the new company. It is most important and necessary for the new company to have at least same standing with your firm as Nippon Denki Co. has with Western Electric Co. in Japan. As the above is a matter of great importance we should like to know the main points of your agreements with Western Electric Co. of America as far as you can in order to enable us to go into further negotiation. At the same time, we should like also to know your ideas to remove the obstacle caused by the above agreement.29 As this letter from Yoshimura indicates, Furukawa Electric Industry, which had been established in April 1920,30 was already going ahead independently with the manufacture of telephone equipment. Consequently, in June, an electrical machinery plant was established in the Yokohama electrical wire factory under the direction of Tonegawa Morisaburo, former director of the Institute for Electrical Inspection of the Communications Ministry. The new plant began the manufacture of telephones. The telephones were of either the Delville type or the solid-back type. These had been established as standard by the Communications Ministry, which used the Western Electric type as its standard. In August 1922, the Yokohama plant was added by the Communications Ministry to the list of designated telephone manufacturers.31 In December 1921, around the time that his letter was mailed, Yoshimura proceeded to Germany, accompanied by Tonegawa and Kajiyama Hideo, with the goal of resolving a number of problems including the problem of the telephone equipment business.32 As mentioned above, Tonegawa was the head of the Yokohama telephone plant. This suggests that one of the major goals of the negotiations was to resolve the telephone issue. The details of the negotiations that took place in Berlin from early the following year are unknown, but there is no doubt that they were stormy. There is a record of the overall negotiations, as follows: In the negotiations with Siemens, the following became clear: 1) The temporary contract referred to in the joint venture memorandum is invalid, since the new company has not been established although six months have already passed (article 17 of the memorandum); 2) among the products that according to article 1 of the memorandum are to be manufactured immediately – namely electric motors for submarines, mercury rectifiers, light electric motors, and transformers as outlets of copper wire – electric motors for submarines are already being exported; there is a restrictive contract with another company relating to the manufacture of telephone switchboards and telephone equipment. Also, there were numerous

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arguments about the problem of sales regions, as dealt with in article 11 of the memorandum – that is, which territories should belong to the new company, and which to Siemens. In particular, sales rights in China were a problem. The trickiest issue was number 3, the problem of the China territory. This was eventually resolved after the president of Siemens, Dr Carl Friedrich von Siemens, discussed the matter with Baron Nakajima Kumakichi, who at that time had come over to Europe as head of a Japanese business mission. They decided that, for five years after the contract, Siemens would have all sales rights in China, and that after five years they would discuss the problem again.33 In any event, as Siemens had requested, telephone equipment including automatic switchboards was removed from the business activities of the new joint-venture company.34 On March 23, 1923, Siemens-Schuckert’s chairman of the board of directors, Carl Köttgen, and head of the overseas business division, Hermann Reyss, as well as Furukawa Electric’s Yoshimura and Kajiyama, signed an additional memorandum. According to the company history of Fuji Electric and Fujitsu: The contents of this memorandum and the additional memorandum are summarized as follows: 1) The new company will manufacture, assemble, and market the following machines and appliances: generators, electric motors, transformers, regulators, distributing boards, electric gauges, calibration equipment, searchlights, telephone equipment, telegraph equipment, signals, medical equipment, water volume measures, etc.35 Here ‘telephone equipment’ is included just as before. However, it was mistakenly included, and the automatic switchboards and other telephone equipment that Furukawa had hoped for were expunged from the additional memorandum. In this way, Siemens’ inconsistency aggravated the situation. Siemens forced Furukawa to revise the contents to which they had previously agreed. The end result was that Siemens resumed exporting automatic switchboards and other telephone equipment that it had planned to manufacture locally. Of course, even if the manufacture and sale of automatic switchboards and other telephone equipment had been included in the scope of the newly formed company, whether or not Siemens would have embarked immediately on such manufacture is open to question. Certainly, the low level of Japanese technology would suggest the likelihood of a relatively cautious approach. And, in fact, Siemens lagged behind Western Electric in switching to local manufacturing, particularly of automatic switchboard equipment (see section IV, 1). Nevertheless, a switch by Siemens to local production was clearly hindered by the agreement with Western Electric.

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6 The telephone equipment industry and the formation of Fuji Electric On August 22, 1923, an inaugural general meeting of stockholders was held to form Fuji Electric. The company was capitalized at 10 million yen (one-quarter paid up), and Natori Wasaku was nominated as managing director. The new company’s businesses, as described in the charter, included the manufacture and sale of varieties of electrical product, including ‘sale of SSW and SH products except all areas of the telephone and electrochemical business.’36 Thus, Siemens continued to export telephone equipment via Siemens-Schuckert Denki. Even though Siemens wanted to manufacture locally, the international market division agreement took precedence over the strategic planning process, and we might therefore call this a ‘forced export strategy.’ Incidentally, in documents published by the concerned parties, the fact that telephone equipment was eliminated from Fuji Electric’s businesses is not made clear. Unsurprisingly, the fact was not made clear that Siemens’ agreement with Western Electric was a decisive reason for the elimination. The following explanation for the situation is quite unclear: The original contract with Siemens for cooperation included the manufacture and sale of telephone equipment, but for several reasons, including the one that Furukawa Electric Industry already had a telephone equipment manufacturing plant, this was later removed from the contract.37 The same author, Wada Tsunesuke, adds the following recollection: Furukawa Electric Industry had planned from the beginning of the Taisho period [1912–26] to manufacture communications equipment such as telephones, telephone equipment, etc., and had proceeded with preparations to that end. Thus communications equipment was included in the negotiations for a cooperative agreement with Siemens. At the founding of the joint venture company, however, there was a disagreement about the amount of investment each company was to make in communications equipment. Furukawa asserted that its share should be 500,000 yen, but Siemens disagreed, so in the end Furukawa had no choice but to give up and pursue its own path, and it removed communications equipment from the contract.38 It seems to have become a common theme of those connected with the jointventure company to attribute the confrontation to the amount of investment. It even prompted some criticism of Furukawa’s executives.39 However, it should probably be seen as a fiction without foundation. In fact, article 5 of the memorandum of June 1921 valued the capital of the Yokohama electric equipment plant at 500,000 yen, and this amount was designated as Furukawa’s investment in the new joint-venture company.

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On the other hand, Siemens – Nihon deno Ayumi 1887–1987 (Siemens in Japan, 1887–1987) provides the following explanation: Furukawa planned to make Siemens a partner in establishing a factory in Japan that specialized in low-tension electricity. However, the reasoning in Siemens’ own business plan did not accord with the thinking of Furukawa. In particular, Siemens reasoned that it was necessary to protect its own employment in Berlin, which was deemed in danger if they did not include trade with the Far East. However, another reason was that the Versailles Treaty removed any problems in the export of the goods concerned. Moreover, considering the existence of SSDKK, Siemens felt that it should eventually renew this company’s function as the sales organization in Japan of the Berlin head office.40 The intention in this passage is to suggest that Siemens chose to continue its export strategy, and, as in the description by Fuji Electric, there is no mention whatever of the agreement with Western Electric. II FROM LOCALIZATION OF SALES TO LOCALIZATION OFMANUFACTURING 1 Localization of sales On September 1, 1923, Fuji Electric opened for business, the same day as the Great Kanto Earthquake occurred. In the earthquake, the telephone system suffered devastation, and the Communications Ministry aimed to use the situation as an opportunity to expand the telephone system, including automation. Automation had been initiated already in April of that year by the Dalian Telephone Office in Manchuria. In the light of that experience, as well as of the results of an overseas survey, the Communications Ministry decided on an expansion plan. It decided to rely on imported equipment, since local production was considered futile.41 The prospects for the telephone equipment industry were becoming clearer. The implementation of the Communications Ministry’s telephone system expansion plan is illustrated in Table 9.2. Capital for expansion peaked at 40 million yen in 1920 soon after the war, but then plunged after the Great Kanto Earthquake. It then grew rapidly to 48 million yen in 1926, however, and in the three years to 1928 it continued to exceed 40 million yen annually. With this rapid expansion of the Japanese telephone equipment market, the telephone equipment industry as a whole reached a turning point. In December 1923, the year of the earthquake, Siemens sent a telephone specialist from Siemens & Halske to Tokyo. In the spring of the following year, another specialist, Wilhelm Bunten, was sent, with the aim of expanding the telephone department of Siemens-Schuckert Denki.

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Table 9.2 Implementation of Communications Ministry’s telephone system expansion plan (business years 1916–36) Year

1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936

Expansion funds 4500000 7500000 10000000 23100000 40100000 34440000 31800000 23590000 13870000 37000000 48620000 47000000 40700000 30950194 21051300 11858500 23571200 23571200 28935500 35708060 37236560

Increase in subscribers 14100 18800 18800 36296 31500 31400 34800 24980 7300 51500 56600 52000 41380 32303 22235 12080 32000 32000 32000 38000 39000

Increase in inter-city lines (km) 6640 13040 11200 13280 12800 12800 14000 10120 5600 8800 12800 15600 25840 15540 22060 10276 12000 12000 17672 27489 29453

Source: Nippon Denshin Denwa Kosha (ed.) 1959: 79–80.

Moreover, under the direction of the two men, production of small-scale telephone equipment was initiated in a corner of Fuji Electric’s Kawasaki plant.42 On the other hand, Furukawa now strongly desired to add telephone equipment, and especially automatic switchboard equipment, to the activities of Fuji Electric, especially because Furukawa Electric Industry’s Yokohama electrical machinery plant had burned down in the aftermath of the earthquake. This attitude on the part of Furukawa was predictable, so Siemens had already formulated a plan in response. In November 1924, Hermann Reyss of Siemens-Schuckert came to Japan and held discussions with the management of Furukawa Electric Industry and Fuji Electric concerning all the problems related to Fuji Electric. The matters in question were credit provision to Fuji Electric as well as a ‘liquidation transaction’ (Verrechnungsverkehr); the telephone equipment business also became an issue.43 Reyss promised to transfer to Fuji Electric only the sales function of the telephone equipment business. This promise contained certain conditions. Those conditions

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arose out of the contract with Western Electric: namely, Fuji Electric would become Siemens’ ‘associated company’ (verbundene Gesellschaft, as defined by Western Electric). The conditions included a prohibition on Furukawa’s starting any competitor companies, and Siemens’ right to set prices. As for the transfer of manufacturing rights, Siemens would at some future point consider this for manual exchange equipment, but would not consider it in future for automatic switchboards.44 Once agreement had been reached on these issues, a contract was signed between the two Siemens’ companies and Fuji Electric on December 3.45 According to this contract, from June 1, 1926 the sale of Siemens-made telephone equipment would be undertaken by Fuji Electric. However, telephone relay equipment and carrier system telephone equipment were not included in this agreement.46 These would continue to be dealt with by Siemens-Schuckert Denki. On June 1, 1925, in accordance with the contract, Siemens-Schuckert Denki transferred two Japanese chief engineers as well as the entire telephone equipment workforce to Fuji Electric, while bringing into the company one German engineer from Siemens. In December 1926, Fuji Electric employed Willy Topp, a Siemens foreman, to help set up the telephone operation.47 In summary, Siemens was constrained by the contract with Western Electric in respect of both exporting to Japan and directly investing in the Japanese telephone equipment market, in spite of the market’s rapid growth, particularly the growth of the automatic switchboard market, after the Great Kanto Earthquake. To the extent that it was limited by this agreement, Siemens was forced to accept relegation to minor status in the Japanese market in terms of both export and local production. It would be no exaggeration to say that the agreement with Western Electric represented a serious disadvantage for Siemens. For the time being, Siemens had no choice but to put up with this situation. However, Furukawa and Fuji Electric could not allow this opportunity to evaporate before their very eyes. They desperately wanted to add telephone equipment, and in particular automatic switchboard equipment, to the business of Fuji Electric. As a result, they added automatic exchange equipment to Fuji Electric’s sales activities from June 1925. However, as before, they were importing the products into Japan, and, moreover, Siemens retained the right to set prices. 2 Sales results for automatic switchboard equipment The focus of telephone equipment manufacture, both technically and financially, was automatic switchboards, with the USA being the leader in this field. In particular, the invention in 1889 of the Strowger-type switchboard was epoch-making.48 In Germany, Siemens & Halske acquired in 1901 a patent for the step-by-step method pre-selector of the Siemens & Halske (SH) type. Using this method, a 2,500-circuit

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automatic switchboard office was established in the Schwabing district of Munich in 1909; afterward, it spread throughout Europe.49 As for Japan, in the spring of 1922, the year before the Great Kanto Earthquake, according to Fujitsu’s company history: At the exposition that opened in Tokyo’s Ueno district, both S & H’s newly manufactured simple-configuration 25-circuit automatic switchboard and the 13circuit switchboard were imported and exhibited. Since these appliances were extremely low-cost, they were greatly welcomed by railroads, schools, and indeed in general, and a great number were put into service. Since at this time the Communications Ministry was not enforcing any standard, these were simply used as private telephone systems. In any event, almost all the automatic switchboards in use in Japan prior to the Great Kanto Earthquake of 1923 were the SH type.50 When a real market emerged in response to the Communications Ministry’s postearthquake automation plan, a fierce battle for market share broke out between the SH-type switchboard and the Western Electric-made Strowger-type switchboard imported by NEC. The result is illustrated in Table 9.3. In 1924, six Tokyo district offices acquired automatic switchboards: Kyobashi, Honjo, Shitaya, Kanda, Kayabacho, and Kudan. Although bids for the SH type were put in, the Strowger type was victorious51. Then, in the 1925 bidding for the Yokohama main office as well as the Yokohama Chojamachi office, a debate arose in the Communications Ministry as to whether the entire country should adopt one type of automatic switchboard or whether various types should be used simultaneously. In the end, it was decided to continue simultaneous use, since for the time being the country had to rely on imports, and price benefits were expected to result from competition among foreign manufacturers. As a result, the SH-type automatic switchboard was adopted.52 The Yokohama switchboards were completed in March 1926, and ‘the first SH-type automatic switchboard office in Japan’ was established.53 For this installation, Fuji Electric took on four men from Siemens & Halske – two chief engineers and two electrical technicians – and they provided on-site leadership.54 Then, in December 1925, the Horikawa and Tennoji offices in Osaka as well as the Kobe Minatogawa office placed orders for the SH-type switchboard. These were followed successively by orders from Osaka’s Sumiyoshi, Tenkajaya, and Fukushima offices, then Kobe’s Suma office, followed by Osaka’s Minami office. In addition, orders came from Manchuria’s Hoten-Kasuga office and Shinkyo-Yamato branch office. From 1926 until 1932, Fuji Electric supplied ten offices in Japan with 39,300 circuits, and two offices in Manchuria with 7,000 circuits, using imported SH-type switchboards.55 The adoption in 1925 of SH-type switchboards by Osaka and Kobe

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Table 9.3 Adoption of automatic switchboards for public telephone system (business years 1926–9) Opening date

Zone – telephone exchange office

Number of Terminal Manufacturerb circuits systema

1926 (January) 1926 (January) 1926 (March) 1926 (March) 1926 (March) 1926 (March) 1926 (March) 1927 (January) 1927 (February) 1927 (May) 1927 (May) 1927 (July) 1928 (March) 1928 (March) 1928 (April) 1928 (April) 1928 (April) 1928 (April) 1928 (April) 1928 (October) 1929 (January) 1929 (July) 1929 (December) 1930 (February) 1930 (February) 1930 (March) 1930 (March)

Tokyo – Kyobashi Tokyo – Honjo Tokyo – Shitaya Tokyo – Kanda Yokohama – Honkyoku Yokohama – Chojamachi Tokyo – Kayabacho Tokyo – Kudan Tokyo – Otsuka Tokyo – Marunouchi Tokyo – Nihonbashi Tokyo – Shiba Osaka – Horikawa Osaka – Tennoji Kobe – Minatogawa Kyoto – Honkyoku Osaka – Sumiyoshi Osaka – Tenkajaya Nagoya – Honkyoku Kyoto – Gion Osaka – Fukushima Kobe – Suma Tokyo – Asakusa Kobe – Mikage Kobe – Ashiya Kawasaki Tokyo – Adachi

9500 9700 9600 5100 6700 7900 7400 5600 8200 7600 5800 4800 7500 9900 7400 7000 3600 4250 5200 4800 7950 3450 9600 7400 4800 3400 2400

A A A A H H A A A A A A H H H A H H A A H H A SB SB A A

AT M AT M AT M AT M SH SH AT M AT M AEI AEI AEI AEI SH SH SH AEI SH SH AEI AEI SH SH AEI SB SB AEI AEI

Source: Nippon Denshin Denwa Kosha (ed.) 1960: 57. Notes: a System: A is the Strowger system; H is the Siemens & Halske system; and SB is the Siemens Brothers’ system. b Manufacturer: ATM is Automatic Telephone Manufacturing of Britain; SH is Siemens & Halske, AEI is Automatic Electric Inc.; and SB is Siemens Brothers.

was significant not only in that it represented a major advance for Siemens products in the telephone appliance market, but also in that the contracts for over 2 million yen totaled some 25 percent of Fuji Electric’s total 1926 sales.56 Looking at the division of the entire Japanese market, Western Electric and NEC predominated in Tokyo, Kyoto, and Nagoya, while Siemens and Fuji Electric fought back in Osaka and Kobe. However, overall, Siemens and Fuji Electric were surpassed by Western Electric and NEC. Table 9.4 gives the total number and the share of contracts with the Communications Ministry by the entire industry (not limited, however, to

14757 (68.4) 8029 (72.4) 3079 (60.8) 3878 (63.1) 1862 (62.6) 1341 (54.5)

1926 1927 1928 1929 1930 1931

3619 (16.8) 2226 (20.1) 928 (18.3) 1369 (22.3) 581 (19.5) 510 (20.7)

Oki Electric 260 (1.2) 153 (1.4) 163 (3.2) 323 (5.3) 171 (5.8) 150 (6.1)

Toa Electrica

b

a

Was succeeded by Hitachi Manufacturing. Was succeeded by Fujitsu. c Became Anritsu Electric. * As the original figure seems to be a misprint, it has been corrected.

Source: Nippon Denki Kabushiki Kaisha 1962: 148. Notes: Figures in parentheses express percentages.

NEC

Year 2415 (11.2) 271 (2.4) 586 (11.6) 151 (2.5) 191 (6.4) 294 (11.9)

Fuji Electricb 516 * 413 307 425 168 166

(2.4) (3.7) (6.1) (6.9) (5.7) (6.7)

Kyoritsu Electricc

Table 9.4 Ministry of Communications’ company contracts (business years 1926–31) (in 1,000-yen units)

21567 (100) 11092 (100) 5063 (100) 6146 (100) 2973 (100) 2461 (100)

Total

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switchboards). According to this table, NEC captured more than half the market in each year. In particular, in 1926 and 1927, the years in which the capital outlay for the Communications Ministry’s telephone system expansion plan peaked, roughly 70 percent of the contracts actually fell into NEC’s hands. Fuji Electric’s share barely surpassed 10 percent, and in bad years it was a miserable 2 percent. Fuji Electric lagged behind not only NEC but also Oki Electric Industry; and Fuji was also threatened by the growth of latecomers Toa Denki Seisakusho (Toa Electric Manufacturing Works, later Hitachi Seisakusho – Hitachi Manufacturing Works) and Kyoritsu Denki (Kyoritsu Electric, later Anritsu Denki – Anritsu Electric). Fuji reached its lowest ebb in 1929. If we consider the 1921 market division agreement with Western Electric, which provided for a 90 percent–10 percent ratio, even though in some years Fuji Electric exceeded 10 percent (incidentally, no penalty was stipulated for exceeding the agreed ratio), there were also years – 1927 and 1929 – when the actual result was far below this ceiling. In response to Fuji Electric’s strong request, Siemens embarked on the localization of sales for telephone equipment, but it refused to undertake local manufacture of automatic switchboards in spite of their importance to Fuji Electric in terms of technology and pricing. According to the agreement with Western Electric, there was an upper limit on Siemens’ market share; however, in actuality, Siemens’ results were well below that level. Moreover, since the technology cooperation agreement with Western Electric included a promise to cross-license, Siemens was afraid that if it implemented local manufacturing or direct investment in Japan, it would have to share its technology with Fuji Electric’s most powerful competitor, NEC. Hence, Siemens’ desire to undertake local manufacturing withered away. Thus, in the mid1920s, when the Japanese telephone equipment market experienced rapid expansion, Siemens’ actions were restricted through the cooperative export strategy it had adopted. So, once again, the result was entrapment in a vicious cycle of competitive weakness. 3 Negotiations for localization of manufacturing According to Siemens’ localization of sales plan, the sales rights for telephone equipment had been transferred to Fuji Electric. Therefore, the dismally low sales achieved by the SH-type automatic switchboard, discussed above, represented a serious problem for Fuji Electric, too. As is evident from Table 9.5, since the company had suffered overall losses of 300,000 yen in 1926, it was proving particularly damaging that the company should have missed the boat in the development of the automatic switchboard market. Furukawa placed the blame for the poor sales results primarily on lack of price competitiveness. Although the SH-type switchboard held its own against the Strowger type in terms of quality, Furukawa saw it as having

1144 4942 6708 10049 8070 10337 8698 6815 5011 7023 10562 15837 15531 12548 23064

1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937

319 1115 899 1057 1498 1348 1304 1032 673 1203 2262 3641 3796 3287 5246

Gross profit

Source: Fuji Denki Seizo Kabushiki Kaisha 1957: 28, 39.

Sales

Year 572 1093 1464 1362 1497 1389 1358 1104 798 898 881 958 1011 1195 1887

Expenditures (–) 207 21 (–) 56 (–) 305 1 (–) 42 (–) 54 (–) 70 (–) 125 125 731 983 1034 1321 2458

Profit and loss

Table 9.5 Business results of Fuji Electric (business years 1923–37) (in 1,000-yen units)

(–) 207 (–) 185 (–) 749 (–) 1055 (–) 1054 (–) 1096 (–) 1150 (–) 1221 (–) 1346 (–) 1221 (–) 490 109 145 240 534

Carried forward profitand loss 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/0 0/6 7/7 7/8 8/9

Dividend ratio (%) (first/second half of year)

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lost out in terms of pricing. Thus, the only way to rectify this weakness was for Fuji Electric itself to undertake manufacturing. Moreover, this reasoning was reinforced by the original June 1921 memorandum on the establishment of a joint-venture company, according to which it was not only sales rights but also manufacturing rights with which the new company was entrusted. To put it more positively, the intention was to create, using Siemens as a model, a general electrical manufacturing company of the kind that did not then exist in Japan. Thus, once the sales rights for telephone equipment were acquired, Furukawa raised the topic of self-manufacturing of automatic switchboards, aiming to persuade Siemens to move toward local manufacturing.57 By raising the topic of local manufacturing, Furukawa pointed to another important factor. In response to government and popular movements promoting the use of domestic products and encouraging the localization of manufacturing, competitors were rushing to switch to domestic manufacture. If it were to miss the boat on this trend, Fuji Electric was afraid that ‘ultimately we will be forced out of the Japanese market.’58 The ‘Buy Japanese’ and ‘Encourage Japanese Manufacturing’ movements had sprung up during the First World War. In June 1926, the Domestic Manufacturing Promotion Committee was established as a government enquiry committee under the auspices of the Ministry of Commerce and Industry. This committee proposed various promotional measures, including subsidies and tax abatement to domestic companies. In keeping with this trend, NEC was among the first to undertake domestic manufacturing, and in 1927 it released for private systems under its own label small switchboards (of the line-finder type) that it had manufactured.59 Moreover, Oki Electric Industry, which up to that point had advocated domestic manufacturing using only Japanese capital and technology, was forced to introduce foreign technology. Its partner was General Electric Company (GEC) of Britain. Oki first entered into an agency agreement with GEC, and then in September 1926 added a technology transfer agreement.60 Furukawa repeatedly suggested to Siemens a revision of their strategy. However, it was not until 1927 that Siemens finally responded to those proposals. In January of that year, Momotani Rokurota of Fuji Electric, who for some time had been in Germany discussing construction of a telephone factory, returned to Japan. At once, a ‘telephone business development conference’ was held at Fuji Electric. Meetings were held also with executives of Fuji Electric and Furukawa Electric Industry. On July 22, the first ‘telephone manufacturing conference’ was held at the Kawasaki plant at which were present: the president, Natori; the plant manager, Emil Otto Kiefer (director; formerly plant manager of Siemens Brothers in Great Britain); Kajiyama; Wada; and Momotani. On July 26, a second conference was held at the same plant. This meeting was attended by Kiefer, Bernhard Mohr (director transferred

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from Siemens-Schuckert Denki to Fuji Electric), three other German chief engineers including Bunten, and Momotani. Considering the people present, one might well think that this had been a meeting not of Fuji Electric but of Siemens-Schuckert Denki. However, ‘In both meetings, technology and capitalization were key points of contention, and we were unable to reach any conclusion,’ recalls Momotani.61 In October 1927, Natori and Momotani visited Saisho, head of the Communications Ministry’s Accounting Department, to discuss manufacturing telephone equipment in Japan. Then, in December 1928, the last telephone manufacturing conference of that year was held.62 Even though almost two years had slipped by, there was no conclusion on local manufacturing. Then, in 1929, Fuji Electric’s director Mohr made a strong recommendation to Siemens’ head office for the local manufacture of automatic switchboards by Fuji Electric. However, he recommended that Siemens & Halske be in sole charge of local production and that sales alone be entrusted to Fuji. According to Mohr, Siemens should undertake local manufacturing at its own cost without Fuji Electric’s participation. This was therefore far from meeting the demands of Furukawa. Siemens acknowledged this proposal from its local representative, that is, it offered partial concessions. However, in exchange for those concessions, Siemens proposed that the sales rights accorded to Fuji Electric in the 1925 agreement should revert to Siemens-Schuckert Denki, and, as compensation, for a period of ten years Siemens would pay 2.5 percent of the value of the factory’s shipments.63 In September 1929, Siemens’ headquarters sent Wilhelm Thies, head of Siemens & Halske’s automatic telephone department, to Japan with the aim of negotiating an on-the-spot solution to this problem.64 Thies came armed with a counter-proposal to Furukawa’s plan, the gist of which was: ‘We should build a factory in Japan to manufacture automatic switchboards under the direct management of Siemens & Halske, and Fuji Electric would be charged with selling them.’65 This proposal was based on the abovementioned proposal by Mohr of Fuji. In any event, from Siemens’ point of view, embarking on local manufacturing represented a complete reversal of its previous plan. Clearly, however, Thies’s plan remained quite different from Fuji Electric’s conception of it. To Fuji Electric, local manufacturing by Siemens meant manufacturing by Fuji Electric. The reason for this was that its motive for wanting to manufacture was not simply cost competitiveness; it was also, as we just saw, the vision which Fuji Electric had held from its founding of becoming a general electrical manufacturer, as well as being, above all, a response to the ‘Buy Japanese’ movement. From Siemens’ point of view, considering the process that had brought them to that point, this plan was a major departure; however, Fuji refused to compromise on its plan. For Siemens, there was no room for further concessions. Naturally, ‘With the failure of the negotiations, Thies stayed in Tokyo only a few more days, then left. With his

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departure, there was no choice but to forget about the establishment of a telephone factory for the time being,’ recalls Momotani.66 Siemens would have to look for another opportunity to act on Furukawa’s demand and agree to initiate local manufacturing. The opportunity arose when Fuji Electric fell into a perilous condition and the Communications Ministry strengthened its local manufacturing plan. By following this development, we will be able to understand the background, motives, and reasoning behind Siemens’ refusal to undertake domestic manufacturing up until 1929. III FUJI ELECTRIC’S MANAGEMENT CRISISAND THE MOVE TOWARD COOPERATION 1 Management crisis and countermeasures At the time of Fuji Electric’s founding, it was concerned only with the importation and sale of Siemens products. The products to be imported included everything from large-scale generating equipment to small gauges. In April 1925, the Kawasaki factory commenced operations. The products made in-house included distributing boards, electric motors, transformers, and generators. Later, the drive to produce inhouse intensified, and, by 1931, in-house products accounted for more than half of total sales: 58 percent versus only 42 percent for imports.67 However, Fuji Electric’s financial results were disastrous. As we saw in Table 9.5, after a minimal profit in 1927, the following years showed losses. In particular, the loss in 1931 of 125,000 yen brought the cumulative deficit to over 1.3 million yen. In a business environment conditioned by the financial crisis of 1927, the Showa economic crisis of 1929, and the resumption of the gold embargo in 1931, Fuji Electric clearly was not the only company to experience losses, as the following shows: At the opening of the Showa period [1926], the equipment investment of expanding electric power companies allowed domestic electric machinery companies to accumulate profits, but the effects of the deepening recession on sales and orders caused a spiral of discounting, and corporate profits plummeted. Furthermore, in April 1931, with the revision of the Electric Power Industry Law, calling for the rectification of power distribution, the electric generation plant plans of private sectors were successively suspended, and the result was that the accumulated profits of the electric machinery companies were almost all frittered away.68 The deterioration of Fuji Electric’s financial results was frequently reported directly from Tokyo to Köttgen, Siemens-Schuckert’s chairman of the board of directors.69 Mixed among the documents addressed to the headquarters were some from a commercial enquiry agency.70

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Fuji Electric’s first response to the management crisis was a reorganization plan. This plan was announced to Reyss of Siemens-Schuckert by president Natori, director Mohr from Siemens, and Nakagawa Suekichi, Furukawa Electric Industry’s president:71 One aspect of the plan to cut production costs was to change from the former system based on manufacturing-cost-plus pricing to one based on market prices. By making the factory market-oriented, they hoped to create a deep concern for cost reduction.72 Next, Fuji Electric acted to reduce the number of German employees, whose salaries were on the average some ten times higher than those of Japanese employees. From 29 in 1925, the number of German employees fell to eight in 1931. Moreover, in May 1930, the Japanese workforce was cut by 49 office workers and 156 factory workers, for a total of 205, or 16 percent of the workforce. For those remaining, salaries were frozen and allowances reduced, among other measures. On the other hand, Fuji Electric raised additional capital in the form of loans from the Daiichi, Mitsui, Mitsubishi, and Mitsui Trust banks, as well as a loan of 1 million US dollars from Siemens (though this was actually a transfer of liabilities).73 Furukawa meanwhile wanted Siemens to increase the independence of Fuji Electric. For example, seeing the depressed state of exports by Fuji Electric, particularly exports to China, Furukawa concluded that one cause was that Fuji was unable to export directly, having to go instead through Siemens-Schuckert Denki. Furukawa therefore appealed to Siemens to permit direct exports to China, a request to which Siemens sent a negative reply.74 At this time, Natori, Fuji Electric’s president, was concerned that the firm might be taken over by Furukawa Electric Industry. What he feared was that if Fuji Electric’s losses continued, Furukawa would absorb Fuji Electric as a means of rationalizing the sales division. Natori himself, in order to pre-empt this move, plotted the merger of Fuji Electric and Mitsubishi Denki (Mitsubishi Electric). Whether or not Furukawa Electric Industry actually had any such intention regarding Fuji Electric at that time is unclear. In any event, Natori communicated both his concern and this plan to Mohr, the director sent from Siemens; and Mohr, in turn, communicated this to Siemens’ head office. Mohr added his own proposal that, in the event of Furukawa Electric Industry making such a proposal, as a countermeasure Fuji Electric should merge with Mitsubishi Electric and a new company established, that manufacturing and sales rights should be transferred to that company, and that all rights to sell Siemens’ products would revert to Siemens’ legal entity in Japan, Siemens-Schuckert Denki. Natori and Mohr’s proposal was given serious consideration by Siemens’ headquarters, which signified its agreement.75 In the middle of 1930, Furukawa Electric Industry proposed to Siemens the suspension of Fuji Electric’s imports and sales of Siemens’ products. Underlying this was a tough plan on the part of Furukawa Electric Industry, along lines to which

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the Fuji Electric president Natori was fundamentally opposed. Representing Siemens’ headquarters, Reyss of Siemens-Schuckert did not reject this proposal out of hand. Behind his attitude was the fact that some people in Siemens & Halske, on seeing Furukawa’s proposal, were prepared to cease channeling exports to Japan through Fuji Electric: If Fuji intends to abandon the import business, we are basically prepared to enter into the negotiation of this matter. . . . The premise behind returning the import business to us is that this would also include completely releasing us from the contract with Furukawa for the formation of Fuji, as well as our withdrawal of patents and know-how.76 In other words, the plan was to revert completely to direct sales through SiemensSchuckert Denki. Perhaps this was primarily a form of posturing. Moreover, this reaction came from within Siemens & Halske, and only from a few people at that. Reyss, who was responsible for the Japan business, taking into consideration the viewpoint of Fuji Electric’s president, sent a reply that was more reasonable in tone. Siemens saw the Fuji Electric management crisis as a ‘reconstruction and adjustment’ (Sanierung) problem, and it wished, if possible, to leave a large number of Germans in the ranks of Fuji Electric’s management in order to maintain its leadership of the ‘reconstruction and adjustment.’ Siemens’ efforts were directed toward the retrieval of its capital and credits. Moreover, Siemens advised or acted on the paying in of unpaid capital and the strengthening of the sales organization.77 As we will see in the next section, Siemens had its eye on restricting competition. We can understand in this context why the above-mentioned idea of a merger with Mitsubishi Electric was approved. If we were to characterize Siemens’ strategy as curtailment of Fuji Electric’s business and reduced participation in that company, we would have to say Siemens had embarked on a withdrawal strategy. Therefore, we should not necessarily look on the hard line proposed by some members of Siemens & Halske as an extreme position. In the Far East, Siemens had been following a cautious approach to business development since before the First World War.78 In its reaction to the management crisis at Fuji Electric, we might say, it acted in the spirit of that tradition. 2 Hopes for a pricing agreement Around the time that Fuji Electric fell into crisis, other Japanese electrical machinery companies also were experiencing deteriorating results. From out of this situation arose various plans within the electric machinery industry, which included telephone equipment, for the limiting of competition through pricing agreements or mergers. Siemens’ headquarters reacted positively to these developments.

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Moves toward sales agreements in the Japanese electrical machinery industry emerged in 1925. In that year, calls for the encouragement of domestic production encompassed the entire electrical manufacturing industry. Not only this sector, but the power generation industry on the demand side, as well as the army and navy, and the Communications, Railway, and Commerce and Industry Ministries, all resolved to support this movement. The target of the ‘Encourage Japanese Manufacturing’ movement encompassed not only heavy electrical machinery, but also electric light bulbs, electrical wire, gauges, and so on. Telephone equipment was also included. The basic policy for encouraging domestic manufacturing was cooperation among manufacturers; more specifically, it encouraged the conclusion of sales agreements. Fuji Electric was one of the four big heavy electrical machinery companies, and it was at the center of the moves toward sales agreements emanating from the ‘Encourage Japanese Manufacturing’ movement. Although an agreement was partially realized, it collapsed within a short space of time.79 After this collapse, a further attempt was made to conclude a market agreement. In 1928, Fuji Electric entered into a pricing agreement with other floodlighting manufacturers. Also, Fuji tried to reach a pricing agreement with Yasukawa Denki (Yasukawa Electric) over rotary motors. Siemens’ headquarters reacted with interest to these moves.80 In 1929, Fuji Electric negotiated with Mitsubishi Electric and Shibaura Engineering, with the aim of concluding market agreements for each of their various products. Hitachi refused from the outset to participate in any agreements, however, and adopted a posture that invited a competitive war.81 The result of the negotiations was the conclusion of agreements relating to large-scale motors, transformers, and switches, among others (featuring compensation for production restrictions), and pricing agreements for floodlights. However, in each case, the participants were unable to avoid making individual or partial agreements, as opposed to a comprehensive agreement.82 While the movement toward pricing agreements was intermittently continuing, in May 1930, Furukawa Electric Industry president Nakagawa informed Siemens’ headquarters that agreements were being concluded only among Fuji, Mitsubishi, and Shibaura, excluding Hitachi. As before, Siemens welcomed this movement, but, unlike previously, Siemens itself contacted Shibaura’s parent, General Electric, and Mitsubishi Electric’s parent, Westinghouse Electric, and made it clear that Siemens was prepared to persuade each of them to use their influence on their subsidiaries.83 3 Hopes for a merger between Fuji Electric and Mitsubishi Electric Parallel with the movement toward pricing agreements was a drift in the direction of a merger of the major companies. Among these, Siemens was naturally

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concerned above all about the proposed merger of Fuji Electric and Mitsubishi Electric. As we have seen, this merger plan was conceived originally by Natori of Fuji Electric, early in 1929, as a countermeasure to the absorption of Fuji Electric into Furukawa Electric Industry. Why the merger candidate should at that time have been Mitsubishi Electric is not entirely clear. Certainly, Mitsubishi Electric had been suffering difficulties also,84 but the same was true of Shibaura Engineering. Back in 1921, however, before the founding of Fuji Electric, there had been a proposal for establishing a joint venture between Furukawa and Mitsubishi.85 The Fuji Electric president, Natori, was a graduate of Keio University, which had traditionally strong links with Mitsubishi, and this may have been a relevant factor in the proposal. In any event, Natori contacted Mitsubishi, which did not reject this proposal out of hand. However, Mitsubishi indicated that before negotiations could begin, it was necessary to sound out the views of both parent companies, Westinghouse and Siemens. Thus, Natori, without telling Furukawa Electric Industry, approached Siemens’ headquarters via Mohr to sound out its opinion and requested that, if it approved the merger proposal, Siemens should contact and persuade Westinghouse to accept the plan.86 At Siemens’ headquarters, Natori’s proposal was examined in detail, first in the overseas business division headquarters, then in a combined executive meeting of Siemens-Schuckert and Siemens & Halske, which was attended by Köttgen, SiemensSchuckert’s chairman of the board of directors. At that meeting, the realization of a merger between Fuji Electric and Mitsubishi Electric was considered to be both possible and very attractive compared to the pricing agreements or the proposal for a union of the four companies. The basis for that judgment was: ‘If we want to preserve not only our capital but also our debentures, we clearly cannot leave Fuji as it is.’87 As a result of this prudent review, Siemens’ headquarters concluded that: 1. it welcomed the merger idea in principle; 2. Siemens would not independently contact or attempt to persuade Westinghouse, but if Mitsubishi Electric succeeded in persuading Westinghouse, Siemens was prepared to negotiate with Westinghouse; and 3. that it was necessary to change the contract with Furukawa Electric Industry to move the import and sales of Siemens’ products back to Siemens-Schuckert Denki. The headquarters communicated these points by telegram and letter to Mohr in Tokyo.88 In a communication to the owner-manager, Carl Friedrich von Siemens, the merger with Mitsubishi Electric was described as ‘the only way’ to facilitate the conclusion of pricing agreements among the remaining three major companies.89 The merger, however, did not come to fruition. When the plan’s originator, Natori, received Siemens’ reply, his tune changed to one of cautiousness. He had sounded

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out Mitsubishi Electric only very tentatively, and was afraid that if he were now to approach them with a specific proposal, they would interpret it as proof of Fuji’s weakness. So he decided to stay silent for the time being and to wait quietly for a good opportunity.90 As for Siemens, it could not help but agree with Natori.91 Later, the merger proposal became known to Nakagawa of Furukawa Electric Industry through Reyss. The situation thus reached an impasse.92 In the final analysis, the relevance of the developments surrounding the Fuji– Mitsubishi merger proposal may be that they clarify both the extent to which Siemens wished to reduce competition in the Japanese market and the underlying motive, namely the strength of Siemens’ desire to protect its capital investment in and credits to Fuji Electric. Siemens’ head office demonstrated its approval both of pricing agreements in Japan as well as of proposals for corporate mergers. Among these, Siemens came to pin its hopes on the relatively realistic plan for the merger of Fuji Electric and Mitsubishi Electric. Puzzled at the fierce competition then prevalent in the Japanese market, Siemens looked to all kinds of action that would restrain competition. And, at the same time as looking at the establishment of a joint-venture company with its rival, Westinghouse, Siemens was also aiming to resume exports of its products via Siemens-Schuckert Denki, as it had done prior to the founding of Fuji Electric. Among these strategic considerations, the concept of localizing manufacture of automatic switchboards apparently faded to nothing. 4 Hopes for a four-company merger The first opportunity to explore the possibility of a merger among the big four companies of the heavy electrical machinery industry – Shibaura Engineering, Mitsubishi Electric, Fuji Electric, and Hitachi – came with the holding company plan proposed by Matsunaga Yasuzaemon, the patriarch of the Japanese electrical power industry, in the spring of 1928. There was, however, strong opposition to this plan.93 Siemens, of course, once again gave this plan careful review, and again had its hopes raised. However, it entrusted the next steps to Fuji Electric. In November 1929, Köttgen, the Siemens-Schuckert chairman who was at that time visiting Japan, conferred with the Furukawa Gomei (Furukawa & Co.) chairman Suzuki Tsunesaburo and the Furukawa Electric Industry president Nakagawa Suekichi, and took the attitude with regard to the merger that ‘the final conclusion was that the matter should be entrusted to the Japanese side.’94 In June 1930, the Temporary Industrial Rationalization Board was established as an external organ of the Ministry of Commerce and Industry. This was the brainchild of the ministry’s Yoshino Shinji and was modeled on the German pattern of industrial rationalization through cartelization and merger. The Temporary Industrial Rationalization Board initiated the framing of the corporate merger plan. Just at that

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time, Fuji, Shibaura, and Mitsubishi were progressing in their talks aimed at a pricing agreement. In order to integrate the corporate merger plan with the talks, the first Electric Machinery and Appliance Manufacturers’ Conference was convened in December 1930, continuing until July 1931.95 Siemens again had high hopes for the corporate merger plan under the direction of the Temporary Industrial Rationalization Board. Moreover, unlike in the Fuji– Mitsubishi talks, which it had left to the Japanese side to organize, this time Siemens showed signs of active participation. In the middle of 1930, as soon as Siemens’ headquarters heard from Natori of the actions of the Temporary Industrial Rationalization Board, it quickly contacted the international business arm of, respectively, General Electric and Westinghouse (International General Electric and Westinghouse International) and urged them to work on their Japanese subsidiaries.96 The main issue for the Temporary Industrial Rationalization Board was whether to merge the companies or, for the time being, to establish a holding company. The board’s advisor, Nakajima Kumakichi, whose ties with Furukawa were not inconsiderable, stuck to the merger plan, while the big four favored the holding company plan. According to Hasegawa Shin: The reason that the heavy electric big four were in favor of the holding company plan was that three of the four (except Hitachi) were tied to foreign electric machinery companies, and a merger would force them to break these ties. . . . The heavy electric big four were passive toward the merger plan, and the companies must not necessarily at once embark on a merger. One basis for his conjecture was that ‘Fuji Electric’s representative, Wada Tsunesuke, stated that, before combining, it was necessary to conclude a pricing agreement.’97 The details of this debate were continuously communicated to Siemens’ headquarters via Fuji Electric. For example, the English-language minutes of the second meeting, held on February 2, 1931, were sent from Tokyo to Berlin together with detailed comments by Fuji Electric.98 The headquarters repeatedly expressed its approval of the progress in these terms: ‘We are following it here with great interest, and welcome it with all our hearts.’99 Natori gave an approving explanation of the details of the holding company plan to Siemens.100 In the end, the plan for combining the big four companies (whether through corporate merger or the establishment of a holding company) ended in failure because of Mitsubishi Electric’s demands, over which the other companies had difficulty in agreeing.101 Fuji Electric continued until the last moment to hold out hope; at least as far as its relations with Siemens’ headquarters went, it stated: ‘We are now at a crossroads as to whether it will be a merger or a holding company.’102 Siemens’

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expectation that either a merger or a holding company would be created was even higher than Fuji Electric’s. In addition to this merger plan under the board’s leadership, parallel discussions aimed at a sales agreement were continuing independently among the companies. In March 1931, Shibaura Engineering, Mitsubishi Electric, and Hitachi arrived at a sales agreement and, on May 15, Fuji Electric joined it. We may conclude that with the establishment of this kind of sales agreement, although a provisional measure, the incentive for establishing a merger or a holding company was weakened. This sales agreement was later joined by Yasukawa Electric and Meidensha, and came to be known as the Satsuki Kai (Azalea Society). The agreement’s main provisions called for the allocation of sales quotas for generators, transformers, distributing boards, and large electrical motors. It provided for a compensation fund to pay out in the event of quotas being exceeded; and it included agreements related to prices and distribution channels.103 As we have seen, Siemens was alarmed at the fierce competition in the Japanese market, and it consistently placed its hope in measures that would achieve the restraint of competition, whether it be in the form of pricing agreements, corporate merger, or a holding company. Therefore, Siemens basically gave its approval to the pricing agreement as well as to the idea of merging Fuji Electric and Mitsubishi Electric on the one hand, and of the big four heavy electrical companies on the other. To that end, it even worked directly to persuade General Electric and Westinghouse. In particular, Siemens attentively examined the merger proposal of the Temporary Industrial Rationalization Board. Ultimately, the merger did not come about. However, the movement toward cooperation bore fruit in the May 1931 agreement among the big four relating to sales quotas, pricing, and distribution channels. Undoubtedly, this was a great relief to Siemens. 5 Formation of international cartels The background to Siemens’ consistent support of the idea of cooperation among the electrical machinery companies in Japan was that cooperation had to some extent progressed among European and American heavy and light electrical machinery companies. In the heavy electrical machinery field, in the midst of a worldwide slump in December 1930, General Electric, Westinghouse, AEG, Siemens, English Electric, and Switzerland’s Brown, Boveri & Cie. concluded a global market agreement known as the International Notification and Compensation Agreement (INCA).104 Japan and South Manchuria were outside the scope of this agreement, so Japanese companies were not directly influenced by it. However, several markets that Japanese companies had begun to penetrate, such as China, India, Soviet Asia, and South-East Asia,

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came under the influence of US and European companies. The Japanese companies with foreign capital – Shibaura Engineering, Mitsubishi Electric, and Fuji Electric – were subject to export restrictions through contracts with their parent companies, and from the beginning they had difficulty in sending goods overseas. The influence of INCA made itself felt only after economic recovery began in 1933.105 In the light electrical machinery field, there was the market division and technology cooperation agreement between Siemens and Western Electric relating to telephone equipment (see section I, 3). In addition, and not unrelated to the above, Siemens reached agreements with General Electric’s US affiliate, Associated Telephone & Telegraph, as well as its British affiliate, International Automatic Telephone (Autelco). Siemens also entered into a technology cooperation agreement with its former British subsidiary, Siemens Brothers. The links between these companies had been completely severed during the First World War; but, in 1929, they exchanged shares and entered into an agreement that provided for the exchange of patent licensing rights, research results, and know-how in the telephone field. In 1929, Siemens & Halske concluded the so-called ‘Zurich contract’ with Autelco and Siemens Brothers, and although they did not ultimately reach agreement, they continued talks aimed at cooperation in the light electrical field, especially in the area of non-military products and exports. One reason for the movement toward this kind of cooperation was the advance of US companies into Germany. General Electric was acquiring shares in and sending employees to AEG, over which it already exerted great influence through its guarantee of AEG’s foreign bonds. International Telephone & Telegraph (ITT), which had become Western Electric’s parent after AT&T, had previously acquired Mix & Genest from AEG; and in 1929 it also purchased Telephon Berliner, Ferd. Schuchhardt, and C. Lorenz, and set up Standard Elektricitäts to control these light electrical companies.106 In this way, Siemens found itself involved in a network of international cooperative agreements in both the heavy and light electrical fields. Within Germany, there were even repeated discussions between 1925 and 1933 aimed at a union of Siemens and AEG.107 Against this background, it seems only natural that Siemens should have been distressed by the excessive competition in Japan and so looked toward greater cooperation. IV FORCED LOCALIZATION OFAUTOMATIC SWITCHBOARD MANUFACTURING 1 Siemens and Fuji Electric’s telephone equipment business In the German telephone equipment market, the strength of Siemens & Halske’s position was overwhelming. The 1921 agreement with Western Electric did not establish any penalties in the event of shares being exceeded, so, of course, the rule was not adhered to strictly. In reality, Siemens & Halske garnered 60 percent of the

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Reichspost contract. Western affiliate Mix & Genest had a share of 7.5 percent, and the remaining 32.5 percent was divided among C. Lorenz and Telephon Berliner, as well as Deutsche Telephon und Kabelwerke. Each of these was furnished with a license for the SH format by Siemens & Halske.108 Orders from the Reichspost peaked at close to 100 million reichsmarks in 1925–6, then plummeted in 1927–8, before recovering somewhat until 1931 when, after the financial panic, orders fell to a level that was negligible compared to preceding years. This was the result not of the loss of a competitive battle, but of a decline in orders from the Reichspost itself for the manufacture of automatic switchboard appliances and the opening of switchboard offices. Orders from private customers in 1927–8 increased while Reichspost orders decreased, but in subsequent years private orders followed the same declining path.109 Moreover, overseas orders followed a similar pattern. The number of telephone subscribers increased from 1.42 million (2.1 telephones per 100 people) in 1913 to 2.59 million in 1929 (3.9 per 100 people), and telephone automation increased from 3.8 percent in 1914 to 40.2 percent in 1928 and 48.8 percent in 1930. However, demand was by no means satisfied.110 The subsequent decline in orders clearly reflected the sudden slump in the German economy as well as the worsening finances of the German Reich. The impact of the slump was generally felt more quickly and more strongly by the heavy electrical sector than it was by light electrical companies. While the profit margin of Siemens-Schuckert was zero for the three years starting in 1930–1, Siemens & Halske recorded profits of 2.9, 3.6, and 4.1 percent, respectively. Moreover, while Siemens-Schuckert suspended its dividends from 1930–1 for four consecutive terms, Siemens & Halske maintained its 7 percent dividend payment even during the slump.111 Siemens also maintained its capital strength, although it was forced to issue foreign bonds worth 14 million US dollars in February 1930, most of which, moreover, were purchased by General Electric, forcing Siemens into the unwelcome position of financial dependence on a rival company.112 During this period of instability, Siemens adopted a defensive business strategy. It discontinued diversification into fields such as automobiles, and it concentrated its business resources in areas of traditional strength, such as electrical equipment.113 If we consider these results and strategies of Siemens, it is clear that during this period Siemens had little incentive or motivation, or the financial resources, to undertake foreign direct investment. Even more remote was the prospect of direct investment in the Far East. Nevertheless, even at this time Siemens was moving toward local production by Fuji Electric in some areas of the light electrical field, where barriers against technology transfers were relatively low. An example is the Pupin loading coil.114 Siemens transferred the business rights for loading coils from Furukawa Electric Industry to Fuji Electric in May 1928, and from February 1929, Fuji Electric began their manufacture.

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On that occasion, Siemens & Halske sent engineers and provided technical assistance. In May 1929, this loading coil received the Communications Ministry’s formal approval, and Fuji Electric became a Communications Ministry-designated manufacturer, as also did NEC. Then, in December 1930, a telephone plant was initiated within Fuji Electric’s Kawasaki factory, and the manufacture and repair of telephones began. As we will see in section IV, 2, this was one response to the Communications Ministry’s pressure to manufacture in Japan, and Siemens later welcomed the move.115 After the autumn of 1929 deadlock over the domestic manufacture of automatic switchboards – the core telephone equipment product – there was no further progress in this area. Moreover, after the initiation of the transfer of sales rights for telephones and switchboards from Siemens-Schuckert Denki to Fuji Electric, the tempo of sales localization began to slow down. Siemens-Schuckert Denki continued as before to hold the sales rights to other equipment, such as high-frequency multiple-type carrier system telephones and Siemens-Telefunken-type carrier system telephones, among others; so, for the telephone equipment business overall, multiple channels existed.116 When Furukawa Electric Industry expressed the intention of making Fuji Electric withdraw from the import business, Siemens welcomed this, and even tried to grasp the chance to regain the sales rights to its own products (see section III, 1). Siemens felt that with direct control over its sales channels it would be possible to expand exports in the future. From the viewpoint of Fuji Electric or of Furukawa Electric Industry, this situation reflected a limit being imposed on Fuji Electric’s product lineup. More than anything, they were upset that Fuji would be prevented from manufacturing automatic switchboards, and thus would fall behind competitors which were launching such manufacture. Western Electric was ahead both in sales and local manufacture of automatic switchboards. As we saw, its subsidiary, NEC, began the manufacture of small switchboards in 1927, and was delivering them for private use only. In 1929, it delivered a 2,800-line public-use switchboard (of the rotary line switch type) to Tokyo’s Nakano office; in this, it was a pioneer.117 Moreover, as we also saw, Oki Electric, which had been a proponent of entirely local manufacturing, embarked on the importation of technology from Britain’s GEC. Oki Electric began deliveries to the Communications Ministry from 1929.118 Moreover, there were reports that Switzerland’s BBC was planning local manufacture in collaboration with Sumitomo, as also was AEG with Okura Shoji.119 Thus, Fuji Electric was a latecomer to the race for the domestic production of automatic switchboards. At the same time, the electrical machinery industry was experiencing a period of rapid technological growth. The level of technology in automatic switchboard manufacturing similarly was advancing, as dials, frequency

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gauges, rotary switches, switchbacks, and rising rotation switches were successively manufactured in Japan.120 Particularly because of the rapid progress in technology, Fuji’s late start could have resulted in a disadvantageous position.121 2 Fuji Electric’s plan for localization of manufacturing In May 1931, Natori Wasaku of Fuji Electric resigned from his position as president to take the job of special advisor to the firm, and moved to the Jiji Shinpo newspaper. His successor was Yoshimura Manjiro, who had been both a director of Fuji and a senior managing director of Furukawa Shoji (Furukawa Trading). At the same time, Kajiyama Hideo and Wada Tsunesuke were internally promoted to the position of director. In the company’s official history, this change of president was treated simply as a personal decision by Natori in response to Jiji Shinpo’s entreaty, but as we have already seen, Natori was at that time warning about Furukawa Electric Industry’s plan to absorb Fuji Electric, and he had contacted Siemens about the idea of a merger with Mitsubishi Electric as a countermeasure. That plan soon became known to the executives of Furukawa Electric Industry, and this perhaps resulted in friction between them and Natori. Natori’s sudden retirement, in fact, was probably something closer to dismissal. In any event, the change in president was sudden. Furukawa Toranosuke – the current head of the founding family – himself informed Carl Friedrich von Siemens of this.122 The new president, Yoshimura, on the one hand undertook a second personnel reduction in the company, decreasing office workers by 30 percent and factory workers by 25 percent.123 On the other hand, the new executive group conveyed to Siemens the March and May 1931 three- and four-company pricing agreements, and the strong hope for corporate merger or establishment of a holding company.124 At the same time, they proposed again the manufacturing in Japan of automatic telephone switchboards.125 In the light of the gradual move toward cooperation in the fiercely competitive Japanese market, Siemens decided for the time being to continue its strategy of exporting, and it put the 1929 plan for local manufacturing of automatic switchboards on hold. To Siemens, the new Fuji management’s request for localization of manufacturing clearly reflected all the more the change from a moderate to a hardline executive group. A letter from Yoshimura first called attention to the fact that the question of local manufacture of automatic equipment had been pending since 1927.126 The letter then gave two reasons why Siemens should not go back on the decision to embark on local manufacturing: first, concern at Western Electric’s advantage in the Japanese market; and, second, the expectation of orders for Siemens’ products from the Communications Ministry. Moreover, as the ‘Encourage Japanese Manufacturing’

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movement gathered momentum, Fuji would be removed from the Communications Ministry’s list of authorized companies if it did not rapidly embark on local manufacturing, and Fuji would lose the market that it had built up thus far. Already, an October 1930 document127 addressed to Siemens told of a plan for Fuji to undertake ‘temporary manufacturing’ (Schein-Fabrikation) in order to retain the Communications Ministry designation. We might conjecture that in reality this meant something close to knockdown assembly. The letter stated also that a definite promise had been made to the Communications Ministry to move to local manufacturing by June 1931 at the latest. Yoshimura’s letter requested approval of these proposals. Furthermore, this letter referred to the diversification strategy of Fuji Electric. That is, based on the pricing agreement among the four heavy electrical machinery companies coming into effect in May 1931, Yoshimura wanted to begin manufacturing in less competitive areas, and automatic switchboards would have been the most appropriate area, since NEC would be virtually the only competitor. Therefore, Yoshimura reasoned, even if Siemens & Halske did not take the Japanese market seriously, Fuji would not simply abandon the telephone business. Thus, Yoshimura’s basis for requesting local manufacture of automatic switchboards was in part a response to the ‘Encourage Japanese Manufacturing’ movement, and also in part a strategy for manufacturing diversification premised on the pricing agreement. While hinting at the irritation felt as a result of lagging behind the competitor companies, the letter pointed to automatic switchboard manufacturing as the strategic key to overcoming the management crisis. From the outset, this approach was in complete opposition to Siemens’ strategy of reduced business operations at Fuji Electric and the reversion of Siemens’ exports to Siemens-Schuckert Denki (see section III, 3). In January 1930, the Hamaguchi cabinet removed the gold embargo, and with that the ‘Encourage Japanese Manufacturing’ and ‘Buy Japanese’ movements accelerated. In July, the Communications Ministry enacted regulations aimed at the encouragement of domestic manufacturing and the rationalization of purchasing. The objectives were the exclusion of foreign management and profits – effectively the expulsion of foreign capital; a discontinuation of dependence on foreign technology; and technological self-sufficiency.128 At around the same time, the navy’s desire to maintain secrecy led to the removal of foreigners from military demand-related factories, and it demanded that foreigners should, as far as possible, be removed from Fuji Electric’s Kawasaki factory.129 NEC, which was more than 50 percent owned by Western Electric, was hardest hit by the Communications Ministry’s ‘Encourage Japanese Manufacturing’ plan. However, it also put pressure on other companies to a greater or lesser extent. This

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became apparent to Fuji Electric in the case of the Osaka Minami office. Here, let us follow Wada’s reminiscence:130 I remember in 1931, at the time we estimated for the equipment of the Osaka office, in the Communications Ministry there was a hard-line view that if Fuji could not undertake local manufacturing, it would be by any means necessary this time to use the Strowger, which was already being manufactured in Japan. On the one hand, since Siemens & Halske would not under any circumstances agree to domestic manufacturing, there was a complete deadlock, and we wondered if the future of the SH type was not hopeless; but when we discussed it with President Yoshimura, we decided to move shortly somehow or other to local production, so we begged the then-head of the engineering works bureau, Kajii (now president of Nippon Telegraph and Telephone Public Corporation), that, since we would not be able to complete the arrangements in time for this order, he should kindly forgive us for importing; next time, we would definitely manufacture locally. Kajii and others concerned, out of the goodness of their hearts, accepted imported products, and, happily, he drew up a contract for us. Yoshimura made a written promise to Kajii, who was then not, in fact, the head of the engineering works’ bureau of the Communications Ministry, but only a lower-level manager.131 As we have already seen, Osaka was, so to speak, home ground for Fuji Electric, so they could not afford to lose this contract.132 3 Toward negotiations in Berlin Fuji Electric was able to secure the Osaka Minami order by promising the Communications Ministry that it would localize and internalize manufacturing. As we saw from Table 9.4, which shows the movement in contracts from the Communications Ministry, these grew 1.5 times in 1931 over the previous year, and Fuji’s market share regained the 10 percent level. Nevertheless, it cannot be called a particularly remarkable achievement, and even that was only barely achieved through a kind of high-wire act. Siemens, however, had not made any promises with regard to local production, and consequently Fuji Electric made a last-ditch attempt to persuade Siemens, the negotiations taking place in Berlin from the end of 1931 to early 1932. In December 1931, Furukawa Electric Industry sent Ogino Gentaro, a director (executive director until the summer of 1931), together with Shimada Kikutaro, to Europe. Their main objective in Germany was to coordinate Furukawa’s relations with Siemens. The issues they were to discuss included the extension of the long-

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distance cable contract between Furukawa and Siemens, as well as the management, operations, and future plans of Fuji Electric. This last issue suggests the inclusion on the agenda of the plan to manufacture automatic switchboards domestically.133 Before the meeting, Furukawa sent Siemens a list itemizing the pending issues. These were: • issues related to Furukawa Electric Industry: promotion of cooperative research; the long-distance cable contract; and the problem of distribution channels; and • issues related to Fuji Electric: a presentation on the current state of the Japanese electrical machinery industry; the present condition and future plans of Fuji Electric; the movement to encourage domestic production; an agenda item relating to the state of Fuji Electric’s finances and cooperative assistance from Siemens (in the areas of the transfer of leading-edge technologies, manufacturing of automatic switchboards, the manufacture of water meters, import promotion, etc.). These constituted the agenda for the negotiations in Berlin.134 Just before the negotiations, Reyss, Siemens-Schuckert’s overseas business division president, received a letter from Yoshimura, president of Fuji. This letter was entirely concerned with automatic switchboards. Yoshimura’s letter thanked Reyss for his letter of September 24, and continued immediately: The major reasons that Siemens & Halske finds Fuji’s proposal difficult to accept are as follows: 1) Fuji does not have the right to manufacture automatic switchboards. 2) According to Siemens, the proposed plan would not be profitable, and in the future it would subject Fuji to a heavy financial burden. From this point of view, Siemens, as one of Fuji’s biggest shareholders, cannot agree to the proposal. 3) In view of the agreement with other companies, local production would cause a great deal of difficulty. Furthermore, Yoshimura confirms, according to Mr Zederbohm’s communication, that among these three points the third one is the most weighty, and that even if Siemens & Halske loses the Japanese market as a result of not manufacturing locally, it will be necessary to let matters take their own course.135 Incidentally, the Willy Zederbohm mentioned here had been hired in 1929 as a director of Fuji Electric and manager of the Kawasaki factory. The ‘agreement with other companies,’ mentioned in the third point, is the agreement between Siemens and Western Electric. And, in stating that this was the most weighty point, Yoshimura was surely on target. Already in 1921, Furukawa executives were vaguely aware of the existence and the contents of an agreement between Siemens and Western Electric. The person who received this information direct was surely Yoshimura (see section I, 5). That he was able to conjecture correctly was due to this sub-plot. Next, Yoshimura wrote frankly as follows:

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Though we are convinced that there is no room for further consideration on the side of SH as the above conclusion was arrived at after the most careful investigation, I once more venture to request SH to find out some way to meet our mutual benefit.136 Then, he stated that he entrusted the discussion of this problem to Ogino, and made it clear that the details of Fuji Electric’s views had been expressed in a letter to Ogino. Moreover, an English translation of the letter to Ogino was probably included in the same package, with a request for Reyss’ ‘help and assistance.’ The sole ground in this letter for emphasizing the need for local production was that without localization it would be impossible to secure orders from the Communications Ministry. And, to reinforce this assertion, Yoshimura pointed to the competition in the manual switchboards’ market. Although in this field the SH type might have been outstanding in terms of quality and price, the reason why the Western Electric type was the market leader was twofold: it had been rapidly introduced and it was being manufactured by Western’s subsidiary, NEC. He was afraid that if Fuji did not participate in the market through local production, the history of the manual switchboard might be repeated for automatic switchboards. He added that if Fuji remained dependent on imports, it would be expelled from the market and would most likely never get a chance to regain its footing. On the same date as Yoshimura’s letter – December 2 – a letter was sent from Fuji Electric to Ogino in Berlin. This also was entirely concerned with automatic switchboards.137 According to this letter, Ogino had met and discussed with Fuji Electric executives several points of contention outstanding between Fuji and Siemens, prior to his departure from Tokyo. In short, Fuji Electric had explained to Ogino the problem of automatic switchboard manufacturing. Therefore, it is not coincidental that Ogino took up the issue of automatic switchboards in Berlin. Fuji Electric had been expecting it of Ogino from the beginning. The letter from Fuji Electric to Ogino also summarized the reasons for Siemens’ refusal of the proposal, referring to the same three points as were made in Yoshimura’s letter. Then, after acknowledging their disparity of viewpoint, it indicated the need to refute the second reason, explaining the details of Fuji’s investment plan. According to that plan, the expected level of investment would be 100,000 yen, not 800,000 yen, as estimated by Siemens. Furthermore, the plan was to import vital parts from Germany. And, as to the current situation, the letter noted that with this level of production it would be very difficult as a local manufacturer to obtain certification from the Communications Ministry, and that, if they were able to obtain such recognition, they could expect considerable growth in sales to the Government, to public organizations, the military, and regionally autonomous political bodies.

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As for Siemens’ third reason, the letter described it in much the same terms as had Yoshimura’s letter to Reyss: We understand through the report of Mr Zederbohm that Siemens’ agreement with other firms causes some difficulty in manufacturing of automatic telephones in Japan, and conclude that this is the real reason for Siemens’ refusal of our proposal. Then, after asking whether the agreement with the other companies completely closed the door to Siemens in respect of manufacturing in Japan or simply placed Siemens at a disadvantage, the letter conjectured the latter on the existing evidence. Furthermore, the letter called for negotiations with the ‘other companies,’ seeking in particular the insistence on separation of the local manufacturing section from the market share section of Siemens’ agreement. In addition, the letter to Ogino indicated that ‘Siemens is rather treating the Japanese market too lightly.’ It discussed the expansion of the Japanese market, pointing out that the Kansai region, in particular, where the SH type was strong, promised even greater prosperity than Tokyo, Kyoto, or Nagoya. With regard to the Japanese market, the letter stated: Recently, the government decided on the extension of the telephone project with a budget of 97,000,000 yen, extending over four years from the coming year. So, they invited us unofficially to tender our estimate for telephone sets for 6,700 subscribers of Minami Telephone Office, Osaka, a long-pending question. We are expecting that they will insistently enquire into the question of home make [sic] during the negotiation of this business and it is an urgent need for us to decide our final attitude regarding this question as soon as possible.138

4 The Berlin negotiations Since at that time it took several weeks for a letter to arrive in Berlin from Tokyo, the letters to Reyss and Ogino did not arrive in time for the early December beginning of negotiations. The issues raised at the first meeting between Ogino and the Siemens’ executives on December 4 were: 1. the promotion of research cooperation and know-how exchange between Furukawa Electric Industry and Siemens & Halske; 2. the extension of the 1923 long-distance cable contract between the two companies; and 3. the issue of distribution channels for cable and electric wire. All three points were concerned with Furukawa Electric Industry, and issues concerning Fuji Electric, including the issue of automatic switchboards, were not

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raised at all.139 At the second meeting on December 7, general issues concerning Fuji Electric were raised. The specific topic of automatic switchboards was not, however, discussed.140 At the third meeting on December 8, the issue of automatic switchboards was raised for the first time together with the topics of water meters and import promotion. A detailed record remains of the discussions at this meeting about water meters and import promotion, but unfortunately there is no identifiable record of the discussion concerning automatic switchboards. Not even a simple allusion can be identified to provide proof that such a discussion occurred. From the research materials, it is impossible to establish when Yoshimura’s letters to Reyss and Ogino arrived, and whether they were helpful. But one thing which is clear is that during Ogino’s stay in Berlin the issue of automatic switchboards was resolved. Siemens was finally persuaded by Fuji Electric. This is indicated by a letter dated January 13, 1932, from Furukawa Electric Industry president Nakagawa to Reyss. In this letter, Nakagawa stated that Ogino obtained a satisfactory result. However, the details of this result, including the outcome in relation to the telephone equipment industry, are not specified.141 Some time later, however, Fuji Electric wrote to Siemens as follows: ‘Regarding the manufacturing of telephones, for which we are pleased to have got your agreement, we shall make a concrete draft for its realization on receipt of your letter of February 10 and will promptly put it in practice.’142 This appears to be the earliest available evidence to indicate the result of Ogino’s negotiations in Berlin. What happened during the Berlin negotiations? Why did Siemens allow itself ultimately to be persuaded by Fuji Electric to agree to local manufacturing? The research materials cast no direct light on this question. One participant, Wada, recalled: ‘Especially unforgettable is the matter of the localization of sales and manufacture of telephones and automatic telephone switchboards,’143 but his recollections of either issue are unfortunately lacking in substance. Even his most specific comment is uninformative: Well, when that happened, Fuji somehow had to start manufacturing the SH type in Japan, but SH [Siemens & Halske] as before would not consent. This was a major problem. However, SH gradually came to understand our position, and thanks to the extraordinary efforts of Siemens’ Tokyo representative, Mr Mohr, and of Furukawa Electric Industry director, Mr Ogino, who was in Europe at that time, at last we were able to obtain consent for local manufacturing; even now when I think of it, I feel this was truly a happy event.144 Although we can only speculate about what, specifically, it was that persuaded Siemens to undertake local manufacturing of automatic switchboards, we surely will not be far from the truth if we conclude that the primary reasons were the Communications Ministry’s local manufacturing plan (which meant completely

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domestic sources in the area of public procurement), as well as Fuji Electric’s promise to the Communications Ministry to localize manufacturing when it was given the order for the Osaka Minami office. Furthermore, we may regard as a second reason Fuji Electric’s cautious investment plan, which was indicated in the December 2, 1931, letter to Ogino. Moreover, as a background factor, we should not overlook ITT’s movement into Germany (see section III, 5), against which Siemens’ action may have been a countermeasure. 5 The initiation of local manufacturing of automatic switchboards In May 1932, three Fuji Electric technicians were sent to Siemens & Halske in order to acquire automatic switchboard manufacturing technology. Also, in November construction was begun of a new telephone plant (one-storied, 1,980 sq. m) (within the Kawasaki factory. This was completed in March 1933. Equipment imported from Germany was installed. A telephone department was set up, and the manufacture of automatic switchboards got under way. The initial staffing level was 245 people.145 In November 1933, Fuji Electric installed the first domestically manufactured SHtype automatic switchboards in the Yokohama Tsurumi office and in the Osaka Minami office (as an additional installation). These two offices were opened in June 1934, and, at the same time, Fuji Electric was added by the Communications Ministry to the list of designated manufacturers of SH-type automatic switchboards.146 However, at that time, Fuji was hardly doing more than knockdown assembly: The first domestically made SH-type automatic switchboard was the appliance installed in the Yokohama Tsurumi office (2,000 lines), but the costs were high since many parts had to be ordered from Siemens and built in, so in the end the construction was unprofitable.147 We can assume from this, moreover, that the level of technology at Fuji Electric was far removed from that of Siemens. As we saw in Table 9.2, the Communications Ministry’s planned expenditures for the telephone industry exceeded 40 million yen over the period 1926–8, but from 1929 the level declined suddenly. In 1929, the level was 24 percent below that of the previous year, and in 1930 there was a further 32 percent decrease. In 1931, the level fell again, by almost half. A factor contributing to this situation was the emergence of the telephone privatization debate: in December 1930 the Nippon Telephone and Telegraph Company Bill was brought before the Cabinet Council. However, it failed to gain passage. Within Siemens and Fuji Electric, meanwhile, there were high hopes that the Seiyukai party would push for growth in communications, and these hopes were realized: taking 1931 as a base, telephone industry expenditures at last began to expand again. In April 1934, the communications industry special accounts system

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was implemented; and, for the telephone industry over 1934 and 1935, the plan called for 64,000 people to be added, and an additional 35,000 kilometers of trunk lines to be built.148 In terms of transitions of this kind, Fuji Electric’s timing in beginning operations when it did was perfect. With the movement to encourage domestic manufacturing and the conclusion of pricing agreements among the big four firms, the decision to manufacture automatic telephone switchboards bore fruit at once. Orders for automatic switchboards grew rapidly, starting with the contract in 1934 with the Communications Ministry for 6,400 lines for the Osaka Kitahama office, and followed by orders for a total of 13,500 automatic switchboards for the Asahi, Hamadera, and Fukushima offices. Including orders from Manchuria and Korea, orders reached almost five times the level of the previous year. In addition, orders for private switchboards grew, starting with 240 lines for Meiji Seimei (Meiji Life Insurance) in 1934. The laying down of cables for both local and trunk lines also advanced, and demand for long-distance cabling increased, with the result that orders for loading coils also grew.149 Financial results also improved. As indicated by Table 9.5, in 1932 there was a profit for the first time in five years. Subsequently, profits increased rapidly. Manufacturing expanded, and in 1934 the company’s own output accounted for 91 percent of total sales. Moreover, as a result of the depreciation of the yen allied to the 1932 tariff revision, imports declined, though in Manchuria and Korea there was demand for imports of large-capacity generators and other products. In the capital account, also, a substantial surplus emerged. The burden of the outstanding 750,000 US dollar balance of the 1 million US dollar loan from Siemens increased as a result of the yen’s depreciation, however, and the loan became difficult to repay. But, as a result of Furukawa Electric Industry’s guarantees and finance from the Industrial Bank of Japan, Fuji was able to purchase the dollar loan under par from Siemens in New York, and eliminate it. Fuji was able to realize a dividend of 6 percent in the second half of 1934 for the first time since the start of its operations.150 With the return to profitability stemming from the recovery from the Showa panic, Fuji Electric undertook new plant and equipment investments in response to the change in the market environment. The first such investment was in the building of a telephone plant. . . . From the second half of 1933 until the first half of 1935, among the expenses approved by the Board of Directors. . . 510,000 yen is clearly identifiable as related to the telephone business, representing a dominant 36 percent of total approved expenses of 1.4 million yen for two years. That is followed by 320,000 yen for a specialized plant for small motors as well as 250,000 yen for expansion of the main plant building. In other words, in Fuji Electric’s investment plan during the recovery from the Showa panic, first came expansion

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of the telephone plant, and next came construction of a factory for massproduction of small electric motors. As for the real recovery of investments in heavy electric machinery, that began with the approval in 1935 of a budget for the expansion of the main plant.151 In this way, NEC’s advantage was progressively eroded, and Fuji was able to occupy a position among the so-called ‘four automatic companies,’ together with NEC, Oki Electric, and Toa Electric Manufacturing.152 V THE FORCED SEPARATION OF COMPANIES 1 Adjustment of relations with Western Electric and NEC In spite of the agreement between Siemens and Western Electric, Fuji Electric began the manufacture of automatic switchboards. In order to follow this path, adjustments were necessary to the relations between Siemens and Western Electric as well as to those between Fuji Electric and NEC. As early as January 1934, NEC made a proposal to Fuji Electric regarding their relationship. The first point of this proposal was the division of the Japanese market: with 70 percent for NEC and 30 percent for Fuji. The second was that NEC would acquire special rights to use Siemens’ patents.153 What NEC wanted, in exchange for market-share concessions to Fuji Electric, was to acquire patent rights from Siemens, thus adding manufacturing of the SH type to the Strowger type. By so doing, NEC hoped both to recapture some lost territory in the automatic switchboard market and to use cooperation in this market as a base for advancing into the wireless and vacuum tube markets; this was the strategy of executive director and chief executive officer Shida Fumio.154 When they received this proposal, Siemens’ management entered the discussions. There were arguments for and against the proposal. Those in favor maintained that the increase in Fuji Electric’s market share in Asia would result in profits for Siemens. On the other hand, those who advocated caution, and those who were against the proposal, pointed out that, since 30 percent of Fuji Electric’s sales would become the allotment of Siemens’ partners in the Zurich contract (Autelco and Siemens Brothers), they could not expect too much from Fuji Electric’s share growth. Moreover, they argued, since the growth of SH-type manufacturing in Japan threatened to lead to exports from Japan, it was necessary to apply some sort of a brake. In so far as it related to the provision of patent rights, the argument for caution generally prevailed. However, as it related to the division of the market, NEC’s proposal ultimately was approved. Since NEC had become a shareholder in Oki Electric through Sumitomo, Siemens’ headquarters interpreted the cooperation between Fuji Electric and NEC as leading to the creation of a ‘big three’ in Japan.155

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This agreement to aim for cooperation meant that there would be a substantial change to the 1921 market-share agreement, which called for a 90:10 ratio. If we assume that in the 1921 agreement the provisions of the 1913 agreement continued unchanged (see Table 9.1), the market-share ratio would be 90:10 for the first four years after conclusion of the agreement – that is, until 1924 – after that, until 1927, the ratio would change to 75:25, and from 1928 it would be 60:40. Therefore, the 70:30 proposed by NEC would not be a greatly substantial change to that envisioned at the time of the 1921 agreement. NEC’s parent company, Western Electric, agreed to the free cross-licensing of patent rights for SH-type and Strowger-type equipment, and also to the prohibition of NEC exports to other areas, with the exception of Manchuria. In this way, the arguments of the more cautious group were overcome, and Siemens’ headquarters agreed also to division of the market and free cross-licensing of patent rights.156 Siemens then obtained the approval of its partners in the Zurich contract to begin negotiations.157 At precisely this time, Fuji Electric’s sales director, Wada Tsunesuke, visited Germany. His mission, as he explained to Siemens at the time, was, first, to give a detailed report on the current state of Fuji Electric’s business as well as on trends in the Japanese electrical machinery industry; and, second, to study specific policies for the promotion of cooperation between Siemens and Fuji Electric.158 As for the latter, we can infer from the fact that, at the time of Wada’s visit, Shida, NEC’s CEO, was also heading for Siemens’ Berlin office, that the focus became the adjustment of relations with NEC.159 As we have seen, since Siemens had in effect already consented to the agreement between Fuji Electric and NEC, there was no need for negotiations toward that particular end. In the negotiations with Siemens’ headquarters and Wada, the marketdivision ratio with NEC for Pupin coils, as well as the local manufacture and marketdivision ratios with NEC for amplifiers and other items were finalized in detail.160 Wada signed a contract with NEC’s Shida.161 Siemens did not agree to this immediately and requested some amendments to the details. In January 1935, Siemens offered a revised agreement.162 Finally, perhaps in the spring of 1935, the agreement was concluded. Once again, the gist of this agreement was that, for automatic switchboards and related equipment, the Japanese market would be divided 70–30, and, furthermore, that cross-licensing would be put into effect. Based on this agreement, NEC sent technicians to Mix & Genest, a German company under the Western Electric umbrella, where they acquired tools and manufacturing plans for the SH-type automatic switchboard to undertake its manufacture. At the end of 1936, they produced the first SH-type automatic switchboard.163 This development was what the more cautious managers at Siemens’ headquarters had feared. According to Wada’s recollection, however: ‘Happily, NEC

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was very behind in the manufacture of the SH type, and it was only able to produce a small quantity, so, in reality, there was little consternation within Fuji.’ 164 Fuji Electric had already mastered the manufacture of the Strowger type but, even with the agreement, there was no new trial manufacturing. One noteworthy aspect of this process of adjustment in relations is that the parent companies consented to the agreement between their subsidiaries. The agreement between the subsidiaries substituted for the agreement between the parents. This development occurred against the background of the emergence of economic nationalism in the Japanese market and the advancement of ‘Japanization’ within the subsidiaries. 2 Exploring cooperation between Fuji Electric and Tokyo Electric A parallel development, and one that took place at the same time as the adjustment of relations with NEC, was a plan for cooperation with Tokyo Denki (Tokyo Electric). Tokyo Electric was linked with General Electric, and it manufactured electric light bulbs and vacuum tubes. From 1930 it undertook also the manufacture of wireless communications equipment. Later, in 1939, it merged with Shibaura Engineering to become Tokyo Shibaura Denki (Tokyo Shibaura Electric, now known as Toshiba). Already, as early as January 1934, Tokyo Electric’s president Yamaguchi Kisaburo had made a proposal to Fuji Electric to form a joint-venture company for the manufacture of light electrical appliances, with the goal that the new company would manufacture Siemens & Halske’s products. Since this proposal did not make it clear in detail, for instance, whether the new company would take over all of Siemens & Halske’s products or just some of them, there was cautiousness and even opposition within Siemens’ headquarters. In the end, the adjustment with NEC took precedence, and relations with Tokyo Electric were put on hold.165 In the summer of 1934, Tokyo Electric’s president Yamaguchi, on a visit to Europe, visited Germany at just the time when Wada was there.166 It was then that Siemens became aware of the outline of Yamaguchi’s plan to establish a new subsidiary.167 On February 6, 1935, Fuji Electric and Tokyo Electric concluded a ‘cooperative management agreement.’ The summary168 reads as follows: 1. Fuji Electric will aim solely to manufacture and sell wired communications equipment, while Tokyo Electric will aim solely to manufacture and sell wireless communications equipment, and neither will trespass in the other’s area. The companies will endeavor to cooperate for the enlargement of mutual profits. 2. Both companies will establish subsidiaries for sales and manufacturing as outlined above. 3. Both companies will mutually possess 20 percent of the shares of the new company formed by the other, and they will mutually transfer employees to these new subsidiaries.

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Prior to the conclusion of this agreement, Fuji Electric sent Siemens an English translation, requesting Siemens’ approval. After the conclusion of the agreement, moreover, Fuji sent a number of telegrams. In response to these, Siemens, giving as the reason the time it would take to reach an understanding with each concerned party, delayed giving a clear answer, but in April, for the first time, it gave a detailed response, which was basically favorable. However, since some details remained unclear, it withheld formal approval.169 Within Siemens, there were those who were opposed to the new company right up to the time of its establishment. In particular, the man in charge of financial affairs related to Japan, Jessen, persisted in his objections.170 However, Fuji Electric moved ahead with the establishment of the new company. Without the agreement of Siemens, Fuji decided to make Zederbohm – a Siemens’ employee who was a director of Fuji Electric and head of the Kawasaki factory – a director of the new company. Management, including that of the factory, was in the hands of Fuji Electric’s Japanese managers. This was in contrast with Fuji Electric itself, where the factory manager was sent from Siemens. Just before the formation of the new company, Nakagawa of Furukawa Electric Industry, who was in Berlin to discuss cooperation between Furukawa Electric Industry and Siemens, cabled Yoshimura, informing him of Siemens’ position. A telegram dated June 18 states: ‘Exports are the problem. No objection to formation [of new company].’171 Yoshimura’s reply to Nakagawa the following day stated: ‘Tomorrow will establish telephone company. Wish to proceed with negotiations on relations with Tokyo Electric after receiving clear answer from Siemens.’172 Considering the opposition within Siemens to cooperation with Tokyo Electric, Fuji could proceed only after having waited for Siemens’ approval.173 Here we see that the subsidiary company, Fuji Electric, took the initiative and Siemens merely confirmed Fuji’s actions. The process that we saw vis-à-vis the agreement with NEC now emerged as a clear pattern. 3 The establishing of Fujitsu On June 20, 1935, Fuji Electric formed Fuji Tsushinki Seizo (Fuji Communications Equipment Manufacturing, now known as Fujitsu), and transferred all of the communications equipment-related assets and business rights that had belonged to a division of Fuji Electric (fixed assets: 700,000 yen; balance of orders received: 350,000 yen), including telephones, to the new company. It had capital of 3 million yen, all of which came from Fuji Electric. To be precise, of a total of 60,000 shares, Fuji Electric held 56,800, while the remaining 3,200 were in the hands of 22 employees and related parties; these were only nominally owned. The post of president was then held by Fuji Electric’s president Yoshimura Manjiro. From Siemens, for the time

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being, Zederbohm became a director. In addition, Leichsenring was transferred from Siemens as head of the transmission department. The headquarters and factory were located in Kawasaki, with a total of 700 employees. The list of products included telephone switchboards, telephones, carrier system telephones, loading coils, signals, and specialized communications equipment.174 Why was it that the telephone equipment business was finally transferred to a separate company? Fujitsu’s company history provides the following explanation: ‘The primary motive for the formation of Fujitsu was for reasons of management; the second motive was the establishment of ties between Fuji Electric Manufacturing and Tokyo Electric.’175 Wada amplifies this explanation as follows: The reason for later separating the communications equipment business and creating a new company was that since the nature of the work differed from that of heavy electric machinery, there might in future be labor problems, and it might be difficult if the terms of employment were the same; also, in Kawasaki, which is close to the sea, there might be problems of dampness and rusting; another reason was that since there were ties with Tokyo Electric, although there were merits to keeping it under the same management, it was thought better to locate this in a separate company.176 Though it might be true that labor management was a consideration, it seems inadequate as an explanation of why Fuji would shrug off Siemens’ disapproval and form a new company. Moreover, the technical factor, though it may have been reason enough to establish a new factory, is not sufficient to explain the setting up of a separate company. Therefore, the relationship with Tokyo Electric must have been the decisive factor. Incidentally, before the ties with Tokyo Electric were finally decided, Yoshimura explained the motive for the establishment of Fujitsu to Siemens as follows: Even if we are unable to secure cooperation with Tokyo Electric, we are convinced that communications equipment manufacturing will develop more if we do it separately and independently from Fuji Electric. For this reason alone, setting up a new, independent company has a great deal of merit.177 This reasoning is not altogether clear. One might guess that an additional reason was the pressure to manufacture domestically in order to protect the secrecy of military equipment. However, one thing which is clear is that Fuji Electric’s management regarded the separation and independence of Fujitsu as important in its own right, and it would not be an exaggeration to say that cooperation with Tokyo Electric was just a means to that end. Also, the independence of the new company implied nothing other than independence from Siemens. And we may assume also that for this very reason there remained opposition within Siemens even after the formation of Fujitsu,

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particularly on the part of Jessen, who continued to deny that establishing a new company was necessary.178 In the end, however, Siemens had no choice but to give its approval after the fact. From Siemens’ point of view, we might call this a ‘forced separation of companies.’ In October 1935, four months after the formation of Fujitsu, Tokyo Electric established Tokyo Denki Musen (Tokyo Electric Wireless).179 The new firm was capitalized at 6 million yen, and in order to implement the terms of the agreement, it was necessary for Fujitsu to put up the same capital as Tokyo Electric Wireless. To that end, in the same month, Fujitsu increased its capital contribution to 6 million yen, and, as also stipulated in the agreement, 20 percent of the shares in each company were mutually exchanged, as were two employees from each firm. Following this, in April 1939, a part of the agreement was revised as follows, to relax the provisions relating to the separation of activities: 1. Fujitsu may manufacture and sell the following wireless communications equipment: 1) wireless telegraph and telephone transmitters under 500 W; 2) all wireless telegraph and telephone receivers. 2. Tokyo Electric Wireless may manufacture and sell the following wired communications equipment: 1) all wired telegraph equipment; 2) manualtype private telephone switchboards and telephones; 3) automatic-type private telephone switchboards and telephones. However, automatic switchboards will be limited to the Barney type.180 In 1943, Tokyo Electric Wireless (which in 1939, on the occasion of the formation of Toshiba, had been renamed Tokyo Denki – Tokyo Electric) and Fujitsu returned their respective shares and the agreement was canceled.181 4 Fujitsu’s activities and quest for managerial and technical independence Just after commencing operations in June 1935, Fujitsu received successive orders both from within Japan and from Japan’s overseas territories. In September 1936, a 7 percent initial dividend was announced. Due to the rapid increase in orders from then on, there was a sudden need for expansion of plant and equipment. The Kawasaki factory was in an industrial district near the coast, and problems had emerged with the rusting of metallic components. Therefore, it was decided to move the factory, and in May 1939, a new factory was completed in the Nakahara district of Kawasaki. With the outbreak of war between Japan and China in July 1937, however, the Japanese economy moved to a wartime footing; and this period also saw limits on the expansion of the automatic switchboard market. Thus, although the Communications Ministry’s telegraph and telephone system expansion plan amounted to 58.38 million yen in 1937, it did not exceed that level after this period.

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Orders for Fujitsu’s automatic switchboards consequently peaked in 1937 at 2.31 million yen, and then dropped by half in 1938 and 1939. In 1940, they grew once again to 2.22 million yen, and this level was maintained until 1943. However, in 1944, they dropped to nothing.182 Fujitsu thus turned to producing carrier system telephone-using technology transferred from Siemens, and it also made non-loaded cables using domestic technology.183 In addition, Fujitsu began the production of hand-grenade fuses and other military equipment. As mentioned already, it was necessary to revise the agreement with Tokyo Electric (the successor to Tokyo Electric Wireless) as a result of the need to manufacture wirelesses and other equipment for the military. From 1942, military equipment production rose rapidly, and, by the second half of 1944, military demand accounted for 95 percent of Fujitsu’s total output.184 Regarding its management, Fujitsu was a wholly owned subsidiary of Fuji Electric. Although there had been an exchange of shares with Tokyo Electric following their cancellation in 1943, the original ownership structure had been restored. Siemens from the beginning had no ownership relationship whatsoever. Although one Siemens person was added to management, this was Fuji Electric’s decision, which was afterwards confirmed by Siemens. From the perspective of both ownership and management, Fujitsu enjoyed independence from Siemens, in contrast with the situation of Fuji Electric. From the technological perspective, however, Fujitsu was naturally dependent on Siemens. But even in this area, there was a strong desire for independence. President Yoshimura instructed the company as follows: I expect you to show a warlike enthusiasm for research as well as the expansion of research equipment and staff. I don’t want you to be solely dependent on Germany for leading-edge technologies. Rather, it is necessary for our company to carry out independent research.185 The limits of technological independence, however, are indicated by the following recollection: The manufacture of switchboards had been satisfactorily localized, but at first we were dogged by large numbers of defects in the relays and panels in machines we installed in Manchuria. Compared with Siemens’ technology, which worked perfectly following unpacking and installation after being transported thousand of kilometers, the Japanese technology did not approach that level.186 Perhaps this was the state of affairs in the early stages. However, the evidence of the limitations of Fujitsu’s technological independence can be seen in its renewal of relations with Siemens after the end of the Second World War, and in the fact that Fujitsu as well as Fuji Electric once again became the recipients of Siemens’

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technology. As to the manufacturing technology for automatic switchboards, since Nippon Denshin Denwa Kosha (Japan Telegraph and Telephone Public Corporation) embarked on the use of the American-developed crossbar system, there was no real need to acquire Siemens’ technology.187 But the fact that Siemens’ technology was indeed required is unmistakable. The ability to internalize the transferred technology depends on the condition of the recipient. Internalization here means that the staff are able to implement it and carry on their business without difficulty as far as the technology in question is concerned. Moreover, if, in time, the recipient is able to improve the transferred technology and undertake independent development, one can say it has become independent.188 In this respect, one cannot say that independence was achieved; rather, it was little more than a desire to be as technologically independent as possible. It is clear that nationalism was a potent factor in this desire for independence, in management, ownership, and technology. From the standpoint of the companies with ties to foreign capital, this was an example of forced ‘Japanization.’ Japanization was certainly evident in the case of NEC and Tokyo Electric – companies which were under the American corporate umbrella. In the case of NEC, the following steps were taken. At the time when NEC was changed to a joint-stock company, Western Electric owned 54 percent of the stock. Western’s original overseas development plan called for the establishment of a 100 percent subsidiary. In Japan, however, it was necessary from the beginning to enter into a joint-venture arrangement. Nevertheless, Western was able to ensure a majority stake. Once Western’s ownership rose to 59 percent, and when it enlisted the participation of Sumitomo Goshi (Sumitomo Ltd) as a measure in reaction to nationalistic pressure, its share was reduced to 50 percent, although Western did not give up management control. In 1938, Western’s share declined to 36.9 percent, and, in 1941, just before the outbreak of the Pacific War, fell to 19.7 percent. With the coming of war, Western fell victim to the Enemy Property Control Law.189 Also, in the case of Tokyo Electric, IGE’s equity share at the founding of the company was over 50 percent; in 1931, this fell to a little below 50 percent, and, in 1934, it decreased to 32.5 percent. Thus Tokyo Electric suffered a fate similar to that of NEC.190 Since Japan and Germany were allies, Siemens was not subjected to the same enforced Japanization as were the two US companies. However, Siemens, too, was unable to avoid these pressures altogether. After the enforced localization of manufacturing, there followed the separation of the companies, and then the

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independent ownership and management of the newly separated Fujitsu as well as its strong urge for technological independence. For Fuji Electric, too, the trend to ‘Japanize’ industry showed itself in the reduction of imported products, changes in the disposition of profits (although there was no move toward a reduction in Siemens’ ownership share), and the limitation of management rights of transferred Siemens staff members and technicians. Let us look at the distribution of profits. In the event that Fuji Electric was able to pay a dividend in excess of 10 percent of profits, it was obliged to pay Siemens a sum equal to 1 percent of manufacturing volume.191 On the other hand, in the event that a 10 percent dividend was not realized, it was unnecessary for Fuji to pay any licensing fees. In this way, Siemens showed its goodwill toward Fuji Electric (incidentally, the licensing fee never exceeded the nominal sum of one yen).192 In fact, when Fuji Electric later began to become profitable, Siemens would not approve the initiation of dividends, instead ordering Fuji to strengthen its balance sheet by adding to internal reserves. Rather, it was Furukawa that insisted on initiating dividend payments.193 When dividends reached 10 percent over the period 1938–43, Siemens did take a license fee, but plowed it back into the company as a capital infusion; the exchange controls left it no other choice. On the occasion of the 1943 capital infusion, in accordance with the conditions imposed by the authorities on the infusion of capital, the dividend was restricted to 9 percent, and therefore Fuji Electric stopped paying licensing fees.194 Thus, the atmosphere of nationalism certainly was a factor in the drive for independence, in the areas of ownership, management, and technology. However, as the foregoing discussion also indicates, we should be aware that this was the result of a very strong desire for independence on the part of the companies themselves. Although not as clear as in the case of Fujitsu, this point is amply demonstrated by the examples of NEC and Tokyo Electric.195 VI CONCLUSION Siemens’ establishment of Fuji Electric is the most important among the rare cases of direct overseas investment by German companies that went as far as local manufacturing before the Second World War. Here we have traced the transition in Siemens’ Japanese telephone business in the context of a consideration of Siemens’ strategic choices. Prior to the First World War, the US company Western Electric had pioneered direct investment in local manufacturing in Japan in the field of telephone equipment. By contrast, Siemens continued its policy of exportation. Siemens, according the Japanese market a minor status, had made an agreement with Western for market division and technology cooperation in the Japanese market.

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After the First World War, however, Siemens decided to begin local manufacturing of electrical machinery products in Japan, including telephone equipment, while renewing its pre-war agreement with Western. At the same time, Siemens concluded a joint-venture contract with Furukawa Electric Industry and included telephone equipment in the activities of the new company. However, this contract contravened the agreement with Western. Once aware of this contravention, Siemens attempted to revise the terms of its memorandum with Furukawa. The result was that telephone equipment was removed from the list of activities of the joint-venture company Fuji Electric, which was established in 1923. With regard to telephone equipment, Siemens thus continued its export strategy as before. However, rather than being a positive strategic decision, this strategy may be termed a ‘coerced export strategy,’ since Siemens adopted it in spite of its manifest desire to manufacture locally. The Great Kanto Earthquake brought about a rapid expansion of the Japanese telephone equipment market, and it was a major turning point for the Japanese telephone equipment industry. In response to Fuji Electric’s demands, Siemens transferred its telephone equipment sales rights to Fuji, but Siemens did not agree to the localization of production of automatic switchboards. Meanwhile, a fierce battle for orders erupted between Fuji Electric’s SH-type automatic switchboard, and Western–NEC’s Strowger-type switchboard. Although strong in the Osaka–Kobe area, Fuji was vanquished overall by Western Electric–NEC. Furukawa Electric Industry saw lack of price competitiveness as the reason, but another factor was the ‘Buy Japanese’ movement. As a result, Furukawa tried to persuade Siemens to switch to local manufacturing. But Siemens, in negotiations in 1929, once again refused. Siemens’ compliance with Furukawa’s demand to embark on local manufacturing of automatic switchboards had to wait for Fuji Electric’s management crisis and the Communications Ministry’s strengthening of its plan for promotion of domestic manufacturing. Fuji dealt with its management crisis by implementing reorganization and personnel reductions. Furukawa also pressed Siemens to strengthen Fuji’s independence. On the other hand, Siemens planned a restructuring that would strengthen its control over Fuji’s business, and Siemens endeavored to ensure the preservation of its investments in the form of loans to Fuji. Moreover, given the background of its international cooperation agreement, Siemens came to look to the restriction of competition in the Japanese market. In particular, Siemens supported a plan for the merger of Fuji Electric with Mitsubishi Electric. Thus, for a while, the plan for localization of automatic switchboard manufacturing was frozen. With the coming of the global depression in 1929, Siemens’ profitability deteriorated, and it had neither the incentive nor the financial resources to undertake overseas direct investment. But from the perspective of Fuji Electric and Furukawa, the limited product line-up, and above all the lack of manufacturing rights for automatic, switchboards, were grounds for impatience – particularly since their

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competitors were at that time beginning to undertake local manufacturing. In 1931, when Yoshimura became president, he implemented a second personnel reduction, on the one hand, but, on the other hand, he once again implored Siemens to allow local manufacturing of telephone switchboards. This request was based on the need to respond to the ‘Encourage Japanese Manufacturing’ movement as well as on the desire for diversification, premised on price cooperation in the Japanese market. Yoshimura argued that automatic switchboard manufacturing was the key to overcoming Fuji’s management crisis. This plan of Yoshimura’s was in complete opposition to that of Siemens, which called for the curtailment of Fuji Electric’s business and Siemens’ reversion to a strategy based on exports. However, having promised the Communications Ministry – without Siemens’ approval – that it would begin local manufacturing, Fuji Electric made a last-ditch attempt to persuade Siemens, and this time Fuji was successful. The main reason why Siemens was forced to accept local manufacturing was the Communications Ministry’s ‘Encourage Japanese Manufacturing’ plan. Once Fuji Electric embarked on local manufacturing, the increase in orders from the Communications Ministry resulted in rapid growth. In a move related to the agreement between Siemens and Western Electric, Fuji Electric and NEC entered into an agreement that divided up the Japanese market based on a 70 percent share for NEC and 30 percent for Fuji Electric, in addition to implementing cross-licensing. Siemens confirmed this agreement after the fact. Moreover, Fuji Electric entered a cooperation agreement with the wireless manufacturer Tokyo Electric. Once again, Siemens confirmed the agreement. The result of the agreement with Tokyo Electric was the creation of a communications equipment manufacturing company, Fujitsu, with Siemens being forced into a separation from this company. From the point of view of ownership and management, this new company was overwhelmingly under the shadow of Fuji Electric, and even in the area of technology, it aspired to independence from Siemens. Ultimately, the basic picture of Siemens’ Japanese telephone business, and above all its automatic switchboard business, was, first, adherence to an export strategy; second, local manufacturing under pressure from the Communications Ministry and Furukawa; and, third, a similarly forced separation from its Japanese subsidiary. The basic trend was toward the relinquishing of managerial control by Siemens over its Japanese subsidiaries and related companies.

10 Concluding remarks

SUMMARY In the Introduction, I pointed to gaps in the socio-economic approach to the history of Japanese–German relations. With this in mind, I laid out the themes of Japanese– German ties in the inter-war period based on a business history perspective and, in particular, on their history of international business relations. I would like to draw some conclusions relating to the development of these themes over the nine chapters, looking at the issues from the angle of strategy and organizational structure as well as the results of technology and management transfer. Chapter 1 presented an overview of the history of Japanese–German business relations. Consideration was given, first, to the special features of the inter-war period, notably the Japanese quest for German technology, the economic competition, and the cool economic calculation that contrasted with warming political ties. Then it showed that, for German companies, the Japanese market was characterized by a trend toward rapid expansion and protectionism, but that Japan remained a free market in relation to international cartels. Note was made also of how German companies continued, as far as they were able, to pursue an export strategy, and when their export strategies were restricted, how they preferred licensing to direct investment. The various forms of inter-firm relations were then examined: in trade, German firms focused on exports of iron and steel products, machinery, and chemical products; while licensing, especially for machinery, was closely linked to the exportation of products. It was demonstrated that most representative German firms were actively engaged in exporting and licensing activities in the Japanese market, while direct investment in Japan by German manufacturers was rare, although trading companies were active investors. The focus of Japanese–German trade relations in the inter-war period was exportation from Germany to Japan, particularly of machinery and chemical products. Chapter 2 dealt with dyestuffs as a representative chemical product. Representing the international dyestuff cartels, I.G. Farben, the sole German exporter to Japan of dyestuffs, succeeded in concluding a series of specific agreements with individual

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Japanese firms as well as with the Japanese dyestuff industry as a whole. In this way, I.G. Farben hoped to secure a dominant position in the Japanese dyestuff market. However, I.G. Farben and the other cartel members were forced to make successive concessions, and eventually they failed to restrain the ambitions and capabilities of the Japanese firms in developing new products and expanding into the Asian market. The other two chapters in Part II dealing with export strategy both looked at machinery. In Chapter 3, consideration was given to the competition between Mitsubishi Shoji and C. Illies, major trading companies of Japan and Germany, respectively, for exports of the Rheinmetall anti-aircraft gun. In the end, neither company won this business, the reason being the bottleneck created by both countries’ shortage of foreign exchange; but, in comparing the competitiveness of the two companies in this particular battle, it was concluded that Mitsubishi was the stronger company, and that this strength could be explained for the most part by Mitsubishi’s technology and close government ties. In Chapter 4, the focus was competition and cooperation between German manufacturing companies. Specifically, relations between Krupp and I.G. Farben were examined, focusing on exports to Japan of Krupp’s high-pressure reaction pipes for synthetic oil. Having received a large number of enquiries from the Japanese military, as well as from Japanese private companies, Krupp and I.G. Farben competed for this business while simultaneously looking for ways to cooperate. Krupp, however, was unable to obtain an export license from the German authorities, even after the signing of the Tripartite Pact in 1940. The main reason for Krupp’s failure was the refusal by the German authorities to grant an export license; but, looking specifically at the competition between the companies, another cause was seen to have been the failure to cooperate with I.G. Farben, whose interests were mainly in licensing. Part III was concerned with licensing. Chapter 5 dealt with the case of the KruppRenn process. This was a success story, although manufacture in Japan was accompanied by technical difficulties. The reasons for this success were the strength of demand from the Japanese side, combined with the leadership exercised by the government-run Showa Steel Works in creating an organized cooperative approach, and, on Krupp’s side, the systematic linkage of exports with licensing. Chapter 6 dealt with I.G. Farben’s Haber-Bosch process, focusing on the efforts by Taki Fertilizer Works in introducing the process. This also was a success story, although it was accompanied by technical problems as well as by a series of conflicts between I.G. Farben and Taki. The most important reason for this success was, apart from the technological superiority of the Haber-Bosch process, the strong demand from Japanese manufacturers. Chapter 7 examined I.G. Farben’s attempt to license its process for synthesizing oil. This was a failure, in contrast to the above cases, although I.G. Farben made

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every effort in trying to license its process and export its equipment to Japan. Analysis of the three possible reasons for the failure – that is, the opposition of the Japanese navy, the position of International Hydrogenation Engineering and Chemical, an international patents’ pool organization, and the terms that I.G. Farben could offer to Japanese clients – led to the conclusion that the opposition of the Japanese navy was the most decisive factor; at least, by the middle of 1939, it had had the most adverse impact on I.G. Farben’s fortunes in Japan. Chapter 8 considered the failed attempt by a Japanese company to license to Germany. In this attempt, a joint-venture company was established in Germany, and the Shimadzu method of making lead powder for batteries was a candidate for licensing to this company. The major reason for the failure was the late time at which patent rights for this method were obtained in Germany. Finally, Chapter 9 looked at the most important example of German direct investment in Japan: namely, the case of Siemens. The chapter focused primarily on telephone equipment and automatic switchboards in particular. The course of Siemens’ strategic efforts was, first, to persist in a forced export strategy based on an agreement to divide world markets; second, to pursue a strategy of local manufacturing, which was forced upon the firm by the Communications Ministry and Furukawa; and, third, also under duress, the separation of the manufacturing company from the joint-venture company with Furukawa. This led to the gradual elimination of Siemens’ management rights over the subsidiary. AMBITION AND PRIDE The foregoing summary describes the points which, I feel, this work has been able to clarify positively. With these points in mind, we can return to the issue raised in the Introduction: that is, the gaps that obtain in the socioeconomic approach to the history of Japanese–German relations; the need for a history of international business relations; and the question: ‘Why should we attach such importance to Germany?’ Germany was the enemy of Japan in the First World War, and its ally in the Second World War. The transition from enemy to ally, from antipathy to sympathy, took place over the course of less than twenty years. The distinguishing features of this period of Japanese–German ties were the high regard in which the Japanese military and private companies held German technology; economic competition; and a cool economic calculation that underlay the warming political relationship (to be more precise, a cool calculation on the German side versus a deluded infatuation on the part of Japan). Inter-firm ties were pivotal to this relationship, and, as in the political and cultural areas, these relations were one-sided. Whether the result was trade, licensing, or direct investment, the nucleus of the relationship was that of German ‘teacher’ and Japanese ‘student.’

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These three inter-firm ties – trade, licensing, and direct investment – were the vehicles also for the transfer of technology and management. Imports of products, and the copying of imported items, constituted a major form of technology transfer. Also, it was not at all unusual for German engineers and workers to go to Japan to offer guidance on the installation and use of imported products, particularly machinery. This was also a significant form of technology transfer. These cases of technology transfer closely resembled those through licensing, although they are defined as technology transfer via exports. Although not as common as exports, there were nevertheless many cases of licensing in a wide sense. As we saw in the case of Siemens and Fuji Electric, however, direct investment was the method that had the most profound impact, in the transfer not only of technology but also of management. As Udagawa Masaru notes: The fact that the value of foreign direct investment in Japan was small does not mean that it played a small role. For the most part, such investment was undertaken by giant companies of global scope that were pre-eminent in technology, marketing organization, and information. Therefore, they had an enormous impact not only in the industrial area, but also on Japan’s business management and industrial policy.1 Nevertheless, there were very few cases of technology and management transfer through direct investment. German investment was no exception. On the other hand, the licensing form was comparatively common, and examples can be found in virtually every industry. The absolute numbers of these agreements and their importance as a medium for the transfer of technology and management are to be emphasized. While the effect of direct investment could be characterized as limited in spread but deep, licensing was perhaps shallow, but its effect was widespread. As a report of the Ministry of Foreign Affairs notes, foreign investment in patents has contributed to Japanese industry much more than has any other form of investment.2 Moreover, the influence of licensing on Japan’s heavy and chemical industrialization and managerial development has not heretofore been appreciated. One may posit a number of reasons for licensing becoming so common, including the capital shortages in both Japan and Germany, but perhaps the most basic reason was the congruity of strategy between Japan and Germany (see Chapter 1, section II, 2). The turning point in the transfer of technology and management occurred around 1930. Until that point, since the 1900 policy shift from exclusion to the welcoming of foreign capital, direct investment in Japan grew steadily; but, after 1930, the policy of exclusion of foreign capital was renewed. After this turning point, the significance of licensing grew in the 1930s. Incidentally, this trend continued into the post-war period. As is well known, the distinguishing feature of foreign direct investment in Japan during the high-growth

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period was the exclusion of management rights, limiting investment to the introduction of technology. This has been advanced as a model for developing countries. It can be seen, however, as simply an extension of the introduction of technology and management through licensing during the 1930s. Here, the comments of Kozo Yamamura deserve quotation: We would like to emphasize that the high growth of Japan in the 1930s, and the foreign policy of Japan from the mid-1920s, clearly, and sometimes directly, were the results of and reflected Japan’s absorption from Western nations during the 1920s and 1930s of the technological capability for producing more and better capital goods.3 The transfer of German technology to Japan through exports, direct investment, and licensing, particularly licensing, both can and should be understood in the context of such an argument. Nevertheless, it is important also to note the barriers encountered by Japanese companies in the transfer of technology and management. The case studies in this book describe these barriers in detail. Even excluding environmental factors such as the shortage of foreign exchange, at the Japanese company level there also seems to have been an excessive confidence by firms in their own technological capabilities. Through the forms of importation, licensing, and direct investment, the ‘student’ Japanese companies greedily absorbed German technologies. While their main characteristic as students was ambitiousness, however, there was also a gap between desire and ability. On the other hand, the German ‘teacher’ companies showed satisfaction in teaching. Their main characteristic as teachers was pride. This kind of ‘teacher–student’ relationship frequently led to technological difficulties and conflicts. Yamamura restates his above-quoted comments in this way: Certainly, many of Japan’s actions, which resulted in the growth of diplomatic tensions and the restriction of international trade in the 1930s, reflected a confidence in Japanese industry’s ability to manufacture sufficiently high-quality machinery to meet increased demand.4 The key is to transpose the term ‘confidence’ for the words ‘technological capability’ in the first quotation. This is linked to the problem of the excessive rating given to Japanese technology by the military as well as by private firms. We may conclude that the events leading up to and including the period December 8, 1941–August 15, 1945 were a consequence of this self-evaluation, linked to the excessive regard in which Germany was held by Japan.

Notes

INTRODUCTION 1. Mochida and Miyake (eds) 1982 represents a balanced approach. The concluding chapter written by Miyake outlines the history of Japanese–German relations from the time of Engelbert Kämpfer and Philipp Franz von Siebold in the Edo era (1603–1867). It includes also a useful bibliography. Relatively comprehensive works by German scholars are Meißner 1961; Preisinger (ed.) 1986 and Preisinger 1987: 197. 2. Onishi (ed.) 1984–5 is a first-class series of introductory books; Nishikawa (ed.) 1984 is an excellent survey. Although both of these deal with the pre-modern and modern periods, not unreasonably neither includes chapters or sections specifically on Japanese–German relations. 3. Political and diplomatic history studies include Miyake 1975. This work is superior in this field in terms of emphasis, thoroughness, and comprehensiveness. See also Miyake 1984; Tajima 1987; Nihon Kokusai Seiji Gakkai (ed.) 1987; Kibata 1988. These are excellent introductory books. For the history of cultural exchange, see the bibliography in Mochida and Miyake 1982. 4. In Japan, those studies by Takenaka 1989, 1991 and 1996, and Watanabe 1968 and in Germany, those by Braun 1987, Pauer 1984a, b and 1992, and Rauck 1988 and 1992, are representative. Reference to these works will be made in the following chapters. 5. On the ‘teacher–student’ relationship in general, see Mochida and Miyake 1982; Preisinger (ed.) 1986; Nakano, Kusune, and Wiegand 1987, especially pp. 181–2. As for recent monographs, see Lins 1989 and Nishizono 1990. For German contributions to industrial technology in the Meiji era, see Saegusa, Nozaki, and Sasaki 1960. 6. Chandler 1962, 1977 and 1990. 7. See e.g. Nakagawa (ed.) 1976; Morikawa 1980, 1985; Ishii, Okumura, Kagono, and Nonaka 1985; Abe 1987; Suzuki, Abe, and Yonekura 1987; Baba 1989: 71–6. 8. See e.g. Siegrist 1980; Morikawa 1991, 1992. 9. Ishii et al. 1985. 10. Wilkins 1974; Abo 1984: Introduction; Enatsu 1984: Part I. 11. See e.g. Watanabe 1984; Yuzawa and Udagawa (eds) 1990; Takenaka 1991, 1996; Kuwahara 1991; Kikkawa 1990; Nakagawa (ed.) 1990. 12. Nakagawa 1963, 1981a, b; Yonekawa 1984; Tsunoyama 1985.

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Notes JAPANESE–GERMAN BUSINESS RELATIONS

1. Pauer 1984a: 162–3; 1984b: 94–5. 2. Takeda 1983: 34, 38. For Japan’s delay in reorganizing its industrial structure, see also Miwa 1973: 294–5. 3. For an overview of the massive technological impact, see Uchida 1983; Nakaoka, Ishii, and Uchida 1986: 213–30. 4. According to Hosoya 1982: 7–8: The termination of the Alliance had another aspect related to the development of the Japanese–British relationship in the 1930s: the movements of the Japanese navy. Originally, the Anglo–Japanese Alliance had the character of a military entente that determined the cooperation plan between the militaries of both countries. However, with the severance of the Alliance, this relationship became almost meaningless, and at the same time, the Japanese wished more than before to introduce German naval technology. After the First World War, the Japanese navy had tried to put its efforts into increasing the fighting ability of its submarines, and at that time it used as technological models the German submarines that were obtained as a result of winning the war. Consequently, many German engineers came to Japan in order to provide instruction in submarine building. Thus, the navy’s technological bias toward Britain was supplanted, and the new emphasis was on the introduction of German technology. This is illustrated by the increase in the number of naval personnel sent to Germany as well as by the changes in the relative numbers sent to Britain and Germany in the 1920s. The end of the Alliance, thus, triggered a change in the Japanese navy’s policy in terms of where to send overseas personnel. That fact influenced relations between the nations. Especially in the late 1930s, this was an element of Japan’s foreign policy that cannot be ignored. 5. Toa Nenryo Kogyo Kabushiki Kaisha (ed.) 1971: 335–6. 6. Togo 1985: 40. The consular reports were entitled Tsusho Koho (Official Commercial Reports) for the period from April 1913 to December 1924, following which they continued as Nikkan Kaigai Shoho (Daily Overseas Commercial Reports) and Shukan Kaigai Keizai Jijo (Weekly Overseas Economic Conditions). The changes as a result of the First World War can be evaluated from these sources, but I wish to leave this analysis to another occasion. Reference should be made to Tsunoyama 1981. 7. For details, see Kudo 1992b: Chap. 2. 8. Solf to Auswärtiges Amt, July 20, 1927, Politisches Archiv des Auswärtigen Amtes, Ha Pol Handakten, Ges. Eisenlohr. 9. Deutsche Bergwerks-Zeitung, January 28, 1933; September 9, 1933; June 12, 1934; Eildienst für Außenhandel und Auslandswirtschaft, August 9, 1934; Hamburgisches Welt-Wirtschafts-Archiv. 10. Schultze 1935; Gothein 1936. 11. Nakano, Kusune, and Wiegand 1987: 49. 12. Bloch 1940: Chaps 1–3. 13. Fujiwara 1979: 80, 84–5. 14. Esser 1986: 92–8. In relation to the activity of Hapro, see also Fox 1981. 15. Petzina 1968; Lewis 1941. For the structure of trade in this area, see Kudo 1983. 16. Kasuga 1984: 288. 17. Manshu Keizai Nenpo (Annual Report on the Manchurian Economy), 1935, cited in Kaneko 1991: 331.

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18. Bloch 1940. 19. Vertretung Berlin to Essen, November 13, 1935, Historisches Archiv of Fried. Krupp GmbH (hereafter referred to as HA Krupp) WA 51/v 1079. 20. Ibid.; Bloch 1940: 37–8. 21. Pauer 1984a: 200–1; 1984b: 127–8. 22. Lemke to von Raußendorff, November 7, 1940, HA Krupp WA 51/v 1079. 23. Pauer 1984a: 201–2; 1984b: 128. 24. ‘Der Deutsch–Japanische Wirtschaftsvertrag’ (The Treaty on German–Japanese Economic Cooperation), in Schwind (ed.) 1943: 272. 25. Nakamura 1971: 2. 26. On tariff and Commerce policies, see Miwa 1978. On foreign capital policy, see Udagawa 1987a: 16; 1987b: 32–3; and 1990; Horie 1954: 397–9. 27. In relation to heavy electrical equipment and telephone equipment, see Chapter 9. In relation to dyestuffs and nitrogenous fertilizer, see Chapters 4 and 5. See also Hara and Kudo 1992. In this work, incandescent light bulbs, soda, and synthetic oil are studied in addition to the above cases, and relations between international cartels and the Japanese market and corporations are categorized ‘horizontal type’ and ‘vertical type,’ and analyzed. A ‘vertical type’ relation signifies an agreement between an international cartel and Japanese companies relating to the Japanese or Asian market. A ‘horizontal type’ refers to agreement between members of an international cartel about the Japanese market in which Japanese companies did not participate (even when Japanese corporations joined, they did so as subsidiaries of Western companies, so we cannot say these were acting as Japanese companies). 28. Schröter 1988: 422. 29. The reason why direct investment was quite important in the electrical machinery industry may be inferred from the following: In other industries, with only a few exceptions such as Nihon Seikosho (Japan Steel Works) and Teikoku Sanso (Imperial Oxygen), there was virtually no direct investment as a means of technology transfer. And even in these cases, the influence on the Japanese industries concerned as a whole was very small compared to the case of the electric machinery industry. . . . At the end of the nineteenth century, when electrical technology was developed on a full scale in both the United States and Germany, leading countries set up a patent system, and, especially in the United States and Germany, through holding patents in electrical technology, oligopoly companies were established, such as AT&T, Westinghouse, GE, Siemens, and AEG. All these big companies pushed internal R&D and continued to have a grip on a major portion of the industrial rights to the main electrical technologies. On the other hand, after the 1894 international treaty on patents (the Paris Treaty), international priority rules were set up, and the transfer of technology started to take place through the licensing of industrial propriety rights. The decision of whether or not to invest capital in licensing rights depended on the policy of the company supplying the technology, and of the legal system of the country receiving the technology. The abovementioned American and German companies chose a policy of technological joint ventures investing their own capital, and Japan revised the treaties with foreign countries in 1899 and joined the Paris Treaty, thus establishing its acceptance of foreign patents and capital. As a result, the domestic electrical manufacturing industry participated in foreign capital cooperation. This is quite a contrast with the chemical industry, where a similar technological gap existed. The Solvay group and the German

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Notes dyestuff industry, which were world leaders, did not resort to the provision of licensing and capital investment, preferring to maintain an export policy. As a result, the transfer of technology to Japan was delayed (Uchida 1989: 153–4).

30. 31. 32. 33. 34. 35. 36.

Illies Shokai 1959; the German version is Molson 1959. Länderrat des Amerikanischen Besatzungsgebietes (ed.) 1949: 412–13, 452, 454. Mitsubishi Shoji Kabushiki Kaisha 1958: 202–21. Nihon Denpo Tsushinsha (Dentsu) 1937. Rauck 1988, 1992. Gaimusho, Tokubetsu Shiryobu (ed.) 1948: 141, 150. Due to their nature, the concrete format of patent investments was often top secret, and international agreements relating to the transfer of industrial property rights were not made public before the war. Due to those facts, the actual figures on industrial property rights transferred to Japan, especially on how Japanese industries were linked with and dependent on foreign countries due to their technology dependence as well as on how Japanese industries were influenced by foreign technologies, are quite vague (Gaimusho 1948: 149). As for international agreements and liabilities related to intangible property rights, detailed research and studies are now under way by various bodies. It is said that in the number of contracts Sweden surpassed Britain, after the United States and Germany (Ibid., p. 150).

37. Mitsubishi Shoji 1958: 222. 38. Contract, July 1, 1929, Historisches Archiv der Metallgesellschaft (hereafter referred to as HA Metallgesellschaft) 150; Vertrag, August 17, 1939, HA Metallgesellschaft 84a; Agreement, August 21, 1939, HA Metallgesellschaft 84a. 39. Gaimusho 1948: 140–8. 40. Hitachi Seisakusho 1961: 397; Udagawa 1987 24(2): 32. 41. Koda 1992. 42. Kudo 1992b: Chaps 4–6. 43. Mitsubishi Shoji 1956: 222. 44. Kasuga 1983: 335–7. 45. Pinnow (no date): 73; Tsukishima Kikai Kabushiki Kaisha 1957: 138–40. 46. Yamazaki 1975: 238–40. 47. Messerschmitt-Bölkow-Blohm GmbH, ‘Deutsche Luftfahrt in Japan,’ PR materials (no date). 48. Mitsubishi Shoji 1956: 240–2; Mishima, Nagasawa, Shiba, Fujita, and Sato 1987: 72. For technology transfer during the Second World War, see Braun 1987. 49. Besprechung, August 4, 1925; Auszug aus dem Code-Telegramm von Dr Rohrbach, May 6, 1925; Bundesarchiv, Militärarchiv Freiburg RH8 v 3606; Dornier GmbH 1983: 16–17. See also Dornier’s internal materials, Dornier GmbH, ‘Dornier Archivunterlagen über die Zusammenarbeit mit Japan,’ München, 1988. 50. Gaimusho 1948: 72–5. 51. Ibid., pp. 68–9. 52. Nippon Kogyo Ginko 1948: 125–37, 241–54, 349–57. 53. Udagawa 1987a: 15, 18–20. For research on foreign capital in Japan, see Horie 1950; Ishizaki 1966; Inoue 1983; Masaki 1985; Yamamoto 1989: Chap. 3. For literature presenting empirical analyses or referring to the business activities of foreign-affiliated

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manufacturing companies, see Udagawa 1987a: 15–16. Kuwahara 1991. 54. Gaimusho 1948: 66, 72. 55. Udagawa 1987a: 17, 21. 56. According to Gaimusho 1948: 2, 69–70: These kinds of foreign capital investment, especially those related to technology imports and those aiming at sales of Western specialty products, are relatively high in Japan, and in Japan 99 per cent of foreign capital belongs in these categories . . . . Direct investment in the form of cash is rare; in many cases, foreign-affiliated companies seem to promise to purchase machines, equipment and products from foreign investing companies or their associated companies in exchange for their investment. Examples are Nihon Seikosho [Japan Steel Works], Mitsubishi Denki [Mitsubishi Electric], Yokohama Gomu Seizo [Yokohama Rubber Manufacturing], and Toyo OtisElevator[OrientOtisElevator].

57. 58.

59. 60. 61. 62. 63.

64. 65. 66. 67. 68. 69. 70.

The case of investment in kind includes Nihon Itagarasu (Japan Sheet Glass), Asahi Bemberg Kenshoku (Asahi Bemberg Silk Fabric), and Shibaura Kyodo Kogyo (Shibaura Union Industry). Udagawa 1987b: 39. Pauer 1984a: 167; 1984b: 9. The original source is Müller-Jabusch 1940. Deutsche Bank opened a Yokohama branch in 1872 shortly after its founding, but closed the office three years later. Tatewaki 1987: 48–50, 415–16. For the initial Deutsche Bank’s activities in East Asia, see Pohl 1977a, b; Ishiro 1981: 138–42. In Tatsuki 1982, no German company is mentioned. Liste der deutschen Firmen in Japan & Korea [July 1, 1926]; Liste der deutschen Firmen in Japan July 1928, Bundesarchiv, Abteilungen Potsdam, Auswärtigesamt, Nr. 64004, Bl. 49–57, 166–73. Nihon Denpo Tsushinsha 1937 (Appendix): 20, 26. This list, however, is not comprehensive. Deutsche Industrie- und Handelskammer in Japan 1987: 20–1. Nihon Denpo Tsushinsha 1937. In relation to the study of foreign direct investment of Japanese companies, the main literature in English is Okochi and Inoue (eds) 1984; Wilkins 1986; Yonekawa and Yoshihara (eds) 1987; Kuwahara 1990a, and its bibliography on pp. 6–7; and 1990b. According to research conducted by the Ministry of Finance, there were thirty-one branches and agencies of Japanese companies (including banks) in Europe in 1945. The credibility of this research is, however, low. See Okurasho, Kanrikyoku 1948: 20. Deutsche Industrie- und Handelskammer in Japan 1987: 20–1. Meißner 1943: 245, 248–9. Nihon Denpo Tsushinsha 1937 (Appendix): 1–19. Meißner 1943: 244. For a study on foreign employees in Japan, see Umetani 1989: 75. Niizeki 1988: 47. Okurasho 1948: 20–2. Ministry of Education students studying in Germany nominally got only the same stipends as students in other countries. However, if they used special marks, they could exchange yen for marks at a favorable rate, and for these economic reasons, in addition to the fact that there was a clear trend to fascism in Japan and closer ties between Japan and Germany, Ministry of Education students started to go in

228

Notes larger numbers to Germany. If we look at the statistics of the Ministry of Education students in the mid-30s, among about 170 students, more than 140 went to Germany, and only about 20 to other countries. . . . The Ministry of Education students in Germany concentrated in Germany unwittingly became messengers of Nazi cultural propaganda. The army officers in Berlin, led by Ambassador Oshima, together with more extremist Ministry of Foreign Affairs officers, played an important role in driving Japan into the Japanese–German Anti-Comintern Pact as well as the militaristic Tripartite Pact. In domestic politics, they played a role in establishing a new style of politics. Thus, directly or indirectly, they contributed to their own country’s advance toward the abyss of destruction (Wakimura 1976: 45).

71. Sugita 1987: 25. However, Nakahara (1989: 159) gives different numbers – for the army, out of 496 people, 151 were in Germany, compared with 97 out of 172 in the Meiji period. In the Meiji period, only 33 naval staff out of 196 were in Germany. 2

COMPETITION AND COOPERATION

1. For an overview of relations between Japanese firms and international cartels, see Hara and Kudo 1992; Kudo 1995. 2. Compiled from a document held in the Hoechst Archiv. See also Kudo 1992b: 24. 3. For details, see Kudo 1992b: 29–31. 4. For details, see Kudo 1992b: 61–3. 5. Agreement, August 6, 1926, Joyakusho 6, Dokkoku Dai 13 go (Treaties, vol. 6, Germany, no. 13), Gaimusho Gaiko Shiryokan (Archives of Foreign Policy, the Ministry of Foreign Affairs). 6. For details of the conclusion of the Saito–Waibel Agreement, see Kudo 1992b: 80–6. 7. For details, see Kudo 1992b: 127–37. 8. Kudo (forthcoming): Chap. 3, section II, 2. For details, see V. Schröter 1984: 295–8; H.G. Schröter 1987: 488–94; 1990: 122–8; 1992. 9. Nihon Senryo Seizo Kabushiki Kaisha (ed.) 1936: 67; Nihon Tar Kogyokai (ed.) 1965: 391–2. On the anxiety of the Swiss companies, see Vertretung von Sandoz, Kobe to Sandoz, Basel, November 8, 1928, Firmenarchiv Geigy, Firmenarchiv Ciba-Geigy (hereafter referred to as FA Geigy) VE/IGK 15. 10. Ciba to Sandoz, February 19, 1929; I.G. Farben to Ciba, March 6, 1929, FA Geigy VE/ IGK 15. 11. I.G. Farben to CMC, Geigy and Durand & Huguenin, May 2, 1929, FA Geigy VE/IGK 15. 12. I.G: Farben to CMC, Geigy and Durand and Huguenin, May 2, 1929; Ciba to Geigy, May 13, 1929; Geigy to I.G. Farben, CMC and Durand and Huguenin, May 15, 1929; Ciba to Geigy, May 27, 1929, FA Geigy VE/IGK 15. 13. For details, see V. Schröter 1984: 300–2; H.G. Schröter 1987: 498–9, 504–7, 511; 1990; 130–1, 135–8, 142. 14. For details of the process of European re-penetration in the US, see Ito 1977: 6– 17; V. Schröter 1986: 171–84; H.G. Schröter 1987: 485, 508; 1990: 118, 138–9. 15. H.G. Schröter 1987: 501–4; 1990: 133–5. 16. Osaka Enogu Senryo Dogyo Kumiai (ed.) 1938: 1,498, 1,685. 17. Auszug aus der Niederschrift über die Sitzung des Arbeitsausschusses, February 17, 1932, Hoechst Archiv.

Notes

229

18. Harada 1938: 294; Osaka Enogu Senryo Dogyo Kumiai (ed.) 1938: 1,703. 19. Nihon Senryo Seizo Kabushiki Kaisha (ed.) 1936: 76; Yamashita 1964: 95–6; I.G. Farben Control Office of the Decartelization Branch, Economics Division, of the Office of Military Government for Germany (US), ‘Activities of I.G. Farbenindustrie AG in the Dyestuffs Industry,’ Frankfurt am Main, 1946: 15, Hoechst Archiv; H.G. Schröter 1987: 511; 1990: 141. 20. Waibel, Voigt, Bericht über die Besprechung über das Japan-Geschäft, August 31, September 1 and 3, 1927, Hoechst Archiv. 21. I.G. Farben to Geigy and CMC, April 22, 1931, FA Geigy VE/IGK 15. 22. I.G. Farben to Geigy and CMC, June 29, 1931; I.G. Farben to Geigy and CMC, July 4, 1931, FA Geigy VE/IGK 15. 23. Ciba to Geigy, October 27, 1930; Geigy to Ciba, April 24, 1931; Ciba to Geigy, April 27, 1931, FA Geigy VE/IGK 15. 24. I.G. Farben to Geigy and CMC, December 30, 1937; I.G. Farben to Geigy and CMC, December 29, 1938, FA Geigy VE/IGK 15-1; I.G. Farben Control Office, op. cit., pp. 90– 1. 25. I.G. Farben to Schweizer, Französische und Englische Gruppe, October 28 and 29, 1936; I.G. Farben to Geigy and CMC, January 22 and 24, 1938; I.G. Farben to Schweizer, Französische und Englische Gruppe, December 1, 1938, FA Geigy VE/IGK 15/1; I.G. Farben Control Office, op. cit., pp. 88–9. 26. For details, see Shimotani 1982: 196–216; T. Suzuki 1988: 257–9, 288. The original sources are in Mitsui Kozan Kabushiki Kaisha’s (Mitsui Mining Co. Ltd) unpublished history of the company. 27. K. Suzuki 1986: 211–12. The original sources are unclassified documents located at the Mitsui Research Institute for Social Economic History. 28. Bundesarchiv, Abteilungen Potsdam, 80 IG Farben 1, A 1305, B1. 54–5; I.G. Farben to Schweizer, Französische und Englische Gruppe, May 29, 1935, FA Geigy VE/IGK 15/ 1. 29. I.G. Farben to Schweizer, Französische und Englische Gruppe, May 29, 1935; July 12, 1935; July 16, 1935, FA Geigy VE/IGK 15/1; K. Suzuki 1986: 211–13. 30. Schweizerische Gesellschaft für Chemische Industrie to Mitglieder, July 1, 1936, FA Geigy VE/IGK 15/1. 31. I.G. Farben to Geigy and CMC, December 5, 1931, FA Geigy VE/IGK 15; I.G. Farben to Schweizer, Französische und Englische Gruppe, June 18 and 20, 1936; April 15, 1937; June 16, 1939, FA Geigy VE/IGK 15/1. 32. For details, see Kudo 1992b: 127–8. 33. For details, see Kudo 1992b: 128–9, 147–9. 34. Memorandum of March 16, 1931, FA Geigy VE/IGK 15; minutes of the special meeting of the Four-Party Cartel held in Frankfurt of August 26–7, 1937, re. Far East, FA Geigy VE/IGK 15/1; I.G. Farben Control Office, op. cit., pp. 77– 85; V. Schröter 1984: 310. 35. K. Suzuki 1986: 216–17, 239. 36. I.G. Farben to Schweizer, Französische und Englische Gruppe, April 24, 1935; proposed cable from I.G. Farben to Du Pont, no date, attached to ICI letter to German, Swiss, and French Group, April 30, 1935, FA Geigy VE/IGK 15/1. 37. ICI to German, Swiss and French Group, April 30, 1935; I.G. Farben to Schweizer, Französische und Englische Gruppe, April 24, 1935; May 3, 1935; May 16, 1935; Ciba to Deutsche, Französische und Englische Gruppe, April 26, 1935, FA Geigy VE/IGK 15/ 1. 38. Agreement, May 14, 1935, FA Geigy VE/IGK 15/1. 39. I.G. Farben to Schweizer, Französische und Englische Gruppe, May 2, 1938; June 4, 1938, FA Geigy VE/IGK 15/1; K. Suzuki 1986: 217–19. 40. I.G. Farben to Französische und Englische Gruppe, July 2, 1938; December 5, 1938;

230

41. 42.

43. 44. 3

Notes December 28, 1938; minutes of the meeting of the board of directors of the Four-Party Cartel held in Paris, November 3, 1938, FA Geigy VE/IGK 15/1; K. Suzuki 1986: 219. Aktennotiz, March 8, 1939, FA Geigy VE/IGK 15/1. Minutes of the special meeting held at Frankfurt am Main, March 8, 1939; I.G. Farben to Schweizer, Französische und Englische Gruppe, March 14, 1938; June 5 and 6, 1939; minutes of the meeting of the board of directors of the Four-Party Cartel held in Basel, March 30, 1939, FA Geigy VE/IGK 15/1. I.G. Farben Control Office, op. cit., pp. 86–7; K. Suzuki 1986: 219. H. G. Schröter 1987: 512–13; 1990: 142–3. RIVALRY BETWEEN GERMAN AND JAPANESE TRADING COMPANIES

1. The Rheinmetall Berlin AG Konzernarchiv (hereafter referred to as KA Rheinmetall). It would appear that evidence of the activities of German trading companies has mostly not survived in the form of individual company records. None are to be found in Hamburg’s Chamber of Commerce. The same is true of Germany’s largest trading company, C. Illies & Co., and internal records do not appear to have been kept at its Hamburg headquarters. Nevertheless, records concerning trading companies remain intact but scattered around the company archives located in each region of Germany, especially in the Krupp, Siemens, and Rheinmetall archives. When data from these sources is added together, it amounts to a large quantity. The majority is fragmentary, but a portion of it has been pieced together. The data from the Rheinmetall archives used here falls into the latter category. 2. According to Kawabe (1982: 9–10): When considering the special character of general trading companies and the trends of established research, concerning the roles, activities and developments of overseas branches and local corporations, we can consider the following problems as worthy of research. 1) Why and how were certain overseas branches and local corporations established at particular points in time? 2) What relationship was there between the establishment of overseas branches and local corporations on the one hand, and the integration of functions, the diversification of the lines of goods being dealt with, and the growth strategies of the general trading companies on the other? 3) How was the relationship between the headoffice and the branch/local corporation put into effect, and what manner of control was exercised? 4) Within each branch office and local corporation, what type of management problems existed, and how were they resolved? 3. Names such as Schultze, Reis & Co., Textor & Co., L. Kniffler & Co., Gutschow & Co., Grauert & Co., A. Schnepel & Co., Lindau & Co., Adrianocho und Schmidt, and Spahn & Co. are good examples. The following represent relatively systematic works on the history of German trading companies: Möring 1971 and 1973. Kniffler and Gildemeister are two names associated with the first German traders in Japan. For a discussion of Kniffler, see Zeike 1980. For a discussion of Gildemeister, see Stahncke 1986. It is thought that both men began their activities in Japan in 1859. However, these pioneering German trading companies had disappeared from Japan by the 1940s, apart from a few exceptions such as Kniffler, which was succeeded by C. Illies & Co.

Notes

231

4. Stahncke 1988. 5. ‘Carl Illies, Hamburg und der Japan-Handel,’ Wirtschaftsdienst, no. 24, June 14, 1918: 543–5. Even today, Hamburg occupies an important position in trade with Japan. In 1950 Hamburg and Bremen companies dealing with trade with Japan numbered 47, of which, 44 were from Hamburg and 3 from Bremen (Biedermann Export- und ImportHandbuch, Commerzbibliothek der Hamburger Handelskammer, Hamburg, 1950: 160– 1). By 1982, those Hamburg companies that dealt with Japanese trade alone had become the majority, or ninety-two in total (Service-Information der Handelskammer Hamburg (ed.), Außenhandel in Hamburg-Export, Hamburg, Commerzbibliothek der Hamburger Handelskammer 1983: 309–10). 6. Among them, of a larger scale were: H. Ahrens & Co., C. Illies & Co., Otto Reimers & Co., M. Raspe & Co., Simon, Evers & Co., Carl Rhode & Co., and Winckler & Co. (Meißner 1943: 245, 248). German trading companies numbered 37 in 1889 (19 in Yokohama, 15 in Hyogo and Osaka, 3 in Nagasaki), which, if we exclude the 346 Chinese trading companies, meant German companies were the second-most numerous after those of Britain, which had 94 (Kagotani 1990: 2). 7. If we break down by nationality the traders who dealt in Japanese exports from Kobe in 1890, German traders controlled 633,000 pounds or 25 percent of the total amount dealt with. This compares to 27 percent for the British and 25 percent for the Chinese. German proportions were high in copper (35 percent) camphor (71 percent), raw silk (85 percent), antimony (89 percent), vegetable wax (44 percent), bamboo (38 percent), and bronze (99 percent). (See Kagotani 1992: 4–5.) 8. See Kudo 1992b: 49. 9. Hamburgs Handel und Verkehr. Illustriertes Export-Handbuch der Börsenhalle 1912/ 14, 8th edn, Hamburg, Commerzbibliothek der Hamburger Handelskammer, 1912: 70. 10. Yuzawa 1989: 21, 23, 27. 11. Hamburger Firmenhandbuch 1943, Hamburg, Commerzbibliothek der Hamburger Handelskammer, 1943: 136. 12. Illies Shokai 1959: 98–9. 13. Robert Bosch Japan Kabushiki Kaisha 1984: 64–5. 14. Illies Shokai 1959: 101. 15. Pauer 1984a: 164–5. 16. Nagasawa 1990: 129, 141, 146. 17. Mitsubishi Shoji Kaisha, Ltd, Vertretung Berlin to Degussa, February 1, 1928, Degussa Firmenarchiv 171. 18. Mitsubishi Shoji Kabushiki Kaisha 1958: 183; and 1986: 240–1. 19. Mishima, Nagasawa, Shiba, Fujita, and Sato, 1987: 220–2. 20. Mitsubishi Shoji 1958: 185. 21. Nihon Keieishi Kenkyusho 1978: 380. 22. Kasuga 1983: 133–4. 23. Kasuga 1984: 335–7. 24. Based on data from documents in Tokyo Keizai University archives. I am indebted to Professor Nakamura Seishi of Tokyo Keizai University for allowing me to use the documents. 25. Rheinmetall-Borsig AG (no date): 64. 26. Chandler 1990: 710, 713. 27. Rheinmetall’s corporate publication. 28. Rheinmetall-Borsig to C. Illies Co., July 23, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial).

232

Notes

29. Reichsgruppe Industrie to Rheinmetall-Borsig, September 16, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 30. C. Illies & Co. to Rheinmetall-Borsig, July 30, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 31. Rheinmetall-Borsig Zentrale Verkauf Waffen to Rheinmetall-Borsig Export KM, August 5, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 32. Wirtschaftsgruppe Luftfahrt-Industrie, August 31, 1937; Zentrale Verkauf Waffen, August 27, 1937; Zentrale Verkauf Waffen, Aktennotiz, September 14, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 33. Wirtschaftsgruppe Luftfahrt-Industrie, September 15, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 34. Zentrale Verkauf Waffen, October 4, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 35. Rheinmetall-Borsig, Aktennotiz, October 30, 1937; November 3, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 36. Rheinmetall-Borsig to Illies, December 14, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 37. Illies to Rheinmetall-Borsig, December 15, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). I could not find the relevant communication from Illies. 38. Illies to Rheinmetall-Borsig, February 3, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 39. Illies to Rheinmetall-Borsig, December 16, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 40. Rheinmetall-Borsig, December 22, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 41. Rheinmetall-Borsig, Aktennotiz, December 10, 1937, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 42. Rheinmetall-Borsig, Aktennotiz, January 14, 1938; Meldestelle der A.G.K. to Rheinmetall-Borsig, January 20, 1938; Rheinmetall-Borsig, Aktennotiz, January 28, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 43. Rheinmetall-Borsig, Aktennotiz, February 8, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 44. Rheinmetall-Borsig, Aktennotiz, January 5, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 45. Oberkommando des Heeres to Rheinmetall-Borsig, February 7, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial); Oberkommando des Heeres to RheinmetallBorsig, February 23, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial); Rheinmetall-Borsig, Aktennotiz, February 28, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 46. Rheinmetall-Borsig, Abteilung Export KM to Bankabteilung, January 31, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 47. Prüfungsstelle für den Bereich der Wirtschaftsgruppe Eisen schaffende Industrie to Rheinmetall-Borsig, December 20, 1937, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 48. Illies to Rheinmetall-Borsig, January 4, 1938; Rheinmetall-Borsig, Aktennotiz, January 28, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 49. Illies to Rheinmetall-Borsig, February 14, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 50. Rheinmetall-Borsig, Aktennotiz, February 28, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen.

Notes

233

51. Rheinmetall-Borsig, Aktennotiz, February 4, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 52. Zentrale Verkauf Waffen to Abteilung Export KM, February 3, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 53. Rheinmetall-Borsig, Aktennotiz, February 12, 1938; Siemens-Schuckertwerke to Rheinmetall-Borsig, February 12, 1938; Rheinmetall-Borsig to Siemens-Schuckertwerke, February 15, 1938; Rheinmetall-Borsig to Electroacustic, February 15, 1938; RheinmetallBorsig to Carl Zeiss, February 15, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 54. Electroacustic to Rheinmetall-Borsig, February 18, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 55. Illies to Rheinmetall-Borsig, February 26, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 56. Rheinmetall-Borsig, Aktennotiz, February 9, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen; Rheinmetall-Borsig, Aktennotiz, February 11, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 57. Illies to Rheinmetall-Borsig, March 4, 1938; Rheinmetall-Borsig to Illies, March 5, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 58. Illies to Rheinmetall-Borsig, March 7, 1938; Rheinmetall-Borsig to Illies, March 8, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 59. Rheinmetall-Borsig, Aktennotiz, March 7, 1938; Carl Zeiss to Rheinmetall-Borsig, March 8, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 60. Rheinmetall-Borsig to Reichsminister der Luftfahrt, March 17, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 61. Mitsui Bussan was also close to Rheinmetall, and it wanted weaponry exports, but this was mostly later, after August 1938. Rheinmetall-Borsig, Stahlverkauf to Zentrale Verkauf Waffen, August 26, 1938; Rheinmetall-Borsig, Zentrale Verkauf Waffen to Stahlverkauf, September 7, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). The navy, too, was close to Rheinmetall through the machine tool-maker Carl Hasse & Wrede GmbH. Hasse & Wrede to Rheinmetall-Borsig, September 24, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 62. Illies to Reichswirtschaftsministerium, March 7, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 63. Deutsche Handelskammer Japan to Ostasiatische Verein Hamburg-Bremen, March 28, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial; Reichsminister der Luftfahrt to Rheinmetall-Borsig, May 21, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen; Wirtschaftsgruppe Luftfahrt-Industrie to Rheinmetall-Borsig, July 11, 1938, KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial). 64. Reichsgruppe Industrie to Rheinmetall-Borsig, March 22, 1938; Reichsgruppe Industrie to Illies, March 22, 1938; Rheinmetall-Borsig to Reichsgruppe Industrie, March 25, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 65. Illies to Rheinmetall-Borsig, May 11, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 66. Illies to Rheinmetall-Borsig, February 7, 1938; Illies to Rheinmetall-Borsig, October 21, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 67. Rheinmetall-Borsig, Notiz, October 7, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen; Rheinmetall-Borsig, Aktennotiz, October 11, 1938; KA Rheinmetall 0296 Abteilung Export KM (Kriegsmaterial); Rheinmetall-Borsig to Mitsubishi Shoji Berlin, October 27, 1938; Rheinmetall-Borsig to Illies, October 28, 1938, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 68. Notiz (S. 0264818), KA Rheinmetall 0288 Zentrale Verkauf Waffen. 69. Illies to Rheinmetall-Borsig, April 12, 1939; May 17, 1939, KA Rheinmetall 0288 Zentrale Verkauf Waffen. 70. Mitsubishi Shoji 1958: 232, 248.

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Notes

71. This probably concerned the airbattles between the Kwantung Army and the Red Army on June 22 and 27. The Japanese announced that they had shot down 49 Soviet planes on June 22, and 98 on June 27, while the Soviets put the numbers at 12 and 33, respectively. See Coox 1985(1): 266, 276. ‘From small arms up, IJA [Imperial Japanese Army] ordnance was generally not in the forefront of technological development’ (Coox 1985(2): 1,084). 72. Illies to Rheinmetall-Borsig, July 26, 1939, KA Rheinmetall 288 Zentrale Verkauf Waffen. 4

COMPETITION AND COOPERATION AMONG GERMAN COMPANIES

1. Kudo (forthcoming): Chap. 5, section III, 2. 2. For details, see Jinzo Sekiyu Jigyoshi Hensan Kanko Kai (ed.) 1956. See also Takeda 1979. 3. For details, see Miyake 1975: 156–61 in particular. 4. Entwurf, January 1939, in Verkauf II to Löser, January 25, 1939, Historisches Archiv of Fried. Krupp GmbH (hereafter referred to as HA Krupp) WA 51/v 1071. 5. For information on Hitler’s directive, see Nagamine 1988: 93. The Bureau for Economic Consolidation was set up as a sub-division of the German Natural Resources Bureau (Amt für deutsche Roh- und Werkstoffe). See Nagamine 1988: 66. 6. Verkauf II Hamburg, Aktenvermerk, October 1, 1938, HA Krupp WA 51/v 1071. 7. Verkauf II Hamburg, Aktenvermerk, October 10, 1938, HA Krupp WA 51/v 1071. 8. Direktorium der Firma Krupp to Reichswirtschaftsministerium, October 14, 1938, HA Krupp WA 51/v 1071. 9. Verkauf II Hamburg, Aktenvermerk, October 19, 1938, HA Krupp WA 51/v 1071. 10. Verkauf II Hamburg to Hauptstelle der Firma Krupp, October 22, 1938, HA Krupp WA 51/v 1071. 11. Direktorium der Firma Krupp to Reichswirtschaftsministerium, November 5 and 25, 1938, HA Krupp WA 51/v 1071. 12. Verkauf II Hamburg, Aktenvermerk, December 2, 1938, HA Krupp WA 51/v 1071. 13. H. Ahrens & Co. to I.G. Farben, October 2, 1937; International Hydrogenation Engineering & Chemical Co. (IHEC) to I.G. Farben, October 25, 1937; Albert Thordsen to Krupp, Lemke, January 28, 1938, HA Krupp WA 51/v 1079. 14. Verkauf II Hamburg, Aktenvermerk, September 3, 1938, HA Krupp WA 51/v 1079. 15. Verkauf II Hamburg, Aktenvermerk, December 14, 1938, HA Krupp WA 51/v 1071. 16. There is one factor worth mentioning with regard to relations between I.G. Farben and IHEC. In the autumn of 1938, Manchurian Fuel Liquefaction was planning to introduce I.G. Farben’s processing technology (although actually it wanted to purchase only highpressure reaction pipes from Krupp). At this time a representative of the firm received a letter from I.G. Farben to the effect that negotiations should henceforth be carried out with I.G. Farben itself and not through IHEC (Vertretung Lemke to Krupp, Essen, December 23, 1938, HA Krupp WA 51/v 1071). Although this is only hearsay, it serves as circumstantial evidence backing the suppositions made in this chapter regarding relations between I.G. Farben and IHEC (see Chap. 7, section II, 1). 17. Verkauf II Hamburg, Aktenvermerk, December 28, 1938, HA Krupp WA 51/v 1071.

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18. Reichswirtschaftsministerium to Grusonwerk der Firma Krupp, Magdeburg, December 29, 1938, HA Krupp WA 51/v 1070. 19. Verkauf II Hamburg, Aktenvermerk, December 31, 1938, HA Krupp WA 51/v 1071. 20. Verkauf II Direktorium, January 24, 1939, HA Krupp WA 51/v 1071. 21. Vertretung Lemke to Krupp, Essen, December 23, 1938, HA Krupp WA 51/v 1071. 22. Direktorium der Firma Krupp to I.G., Ludwigshafen, January 20, 1939, HA Krupp WA 51/v 1071. 23. I.G. to Krupp, Essen, January 24, 1939, HA Krupp WA 51/v 1071. 24. Verkauf II to Vertretung Lemke, December 23, 1938, HA Krupp WA 51/v 1071. 25. Lemke to Grusonwerk der Firma Krupp, Magdeburg, April 10, 1939, HA Krupp WA 51/ v 1057. 26. Aufstellung über abgelehnte Auslandsgeschäfte; Neue Auslandsprojekte, die vorsichtlich auch in vollem Umfange abgelehnt werden müssen, HA Krupp WA 51/v 1071. 27. HA Krupp WA 51/v 1071. In the period 1926–1938, Krupp actually exported equipment for the manufacture of synthetic ammonia to Japan, but did not export any equipment for the manufacture of synthetic oil. Pauer 1984a: 189. 28. See Miyake 1975: 453–4. 29. In a letter from the German Ambassador to Japan, Eugen Otto, to Foreign Minister Matsuoka, dated September 27, 1940. See Miyake 1975: 553–4, 556. 30. I would like to point out in advance, however, that as it turned out the Tripartite Alliance did very little to stimulate negotiations on the new commerce treaty between Japan and Germany. Negotiations recommenced only as late as March 1941, and it was not until two years later in January 1943 that a treaty on economic cooperation, and supplementary agreements on trade, technical cooperation and payments were finally signed. See Pauer 1984a: 199–204. 31. Miyake 1975: 514. 32.

The Tripartite Pact was signed not only for reasons of ideology or because of the appraisal of the war situation, but also for other reasons, including the Japanese wish for unconditional transfer of synthetic oil technology (including blueprints for equipment) from Germany. Moreover, with the overwhelming victories attained by German troops following the launching of assaults in May 1940 on the western front, The Netherlands was wholly occupied by the Germans. This aroused Japan’s particular interest in the Dutch colony of the East Indies. The conclusion of the Tripartite Pact on September 27 of that year led Japan to hope even to gain the freedom to deal as they wished with this colony. The basic motive behind all this was oil (Tominaga 1975: xxix–xxx).

33. Saito 1955: 179. 34. For information on the funding of Imperial Fuel Industry as a state company, see S. Suzuki 1985: 50–6, 60–4. 35. The public office supervising the operation of Imperial Fuel Industry was the Fuel Bureau, an external organ of the Ministry of Commerce and Industry. Though modeled on the French Fuel Bureau, which had great powers, the Japanese bureau was virtually devoid of power, with the real power lying in the hands of the army and navy. These

236

36.

37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50.

Notes observations are based on my interview of June 15, 1987 with Takahashi Takeo, who belonged to the Natural Resources Division of the army’s Supply Bureau. Following the structural reorganization of Imperial Fuel Industry in the summer of 1943, Oshima resigned from his post as a director of the company, and became an executive of Japan Nitrogenous Fertilizer, in which capacity he went to the latter company’s Korean subsidiary. These comments are based on my interviews of June 12 and 14, 1987, with Wakimura Yoshitaro, who at the time was on leave from his post as associate professor of Tokyo University and was serving as manager of the research section of Imperial Fuel Industry. Yoshii 1971: 129–30. Hauptstelle von Krupp to Verkauf II Hamburg, February 7, 1941, HA Krupp WA 51/v 1083. The file is entitled ‘Projekte Oshima.’ See Mitsubishi Shoji Kabushiki Kaisha 1986: 432. Verkauf II Hamburg, Aktenvermerk, February 8, 1941, HA Krupp WA 51/v 1083. Verkauf II Hamburg, Aktenvermerk, February 14, 1941, HA Krupp WA 51/v 1083. Ibid. Ibid. Ibid. Verkauf II Hamburg, Besprechung mit Oshima, February 14, 1941, HA Krupp WA 51/ v 1083. Verkauf II Hamburg, Aktenvermerk, February 14, 1941, HA Krupp WA 51/v 1083. Ibid. Besprechung in Leuna über Auslandsprojekte, June 9, 1939, BASF Archiv; Kudo 1992b: 264–5. Verkauf II Hamburg, Aktenvermerk, February 14, 1941, HA Krupp WA 51/v 1083. Krupp’s representative, Lemke, made the following bitter observation in his communication to the head office: Just as usual with any Japanese gentleman on his business trip over there, he has simply broadened the limits of his duties at his own discretion. . . . My guess is that Oshima contacted the three largest Japanese trading companies in Berlin [Mitsubishi Shoji, Mitsui Bussan, and Okura Shoji], and explained his mission to them claiming they could acquire the high-pressure reaction pipes if and only if they did business through him (Lemke to Krupp, Essen, March 4, 1941, HA Krupp WA 51/v 1083).

51. 52. 53. 54.

In view of the fact that these three companies in Berlin were competitors of Lemke, it seems plausible to assume that his words may have been somewhat exaggerated by his sense of rivalry. Even discounting this plausibility, however, Lemke observation seems to be basically correct. Verkauf II to Hauptstelle von Krupp, February 20 and 22, 1941, HA Krupp WA 51/v 1083. Verkauf II Hamburg, Aktenvermerk, February 22, 1941, HA Krupp WA 51/v 1083. Hauptstelle von Krupp to Verkauf II Hamburg, February 25, 1941, HA Krupp WA 51/ v 1083. For information on how far the Four-Year Plan was adapted to the needs of the Blitzkrieg, see Kudo 1980.

Notes

237

55. Verkauf II Hamburg, Aktennotiz, March 12, 1941, HA Krupp WA 51/v 1083. 56. Verkauf II Hamburg, Aktenvermerk, April 28, 1941, HA Krupp WA 51/v 1083. 57. Verkauf II Hamburg, Aktenvermerk, June 20, 1941, über die Unterredung mit Obenaus, June 18, 1941, HA Krupp WA 51/v 1083. 58. Ibid. 59. Direktorium der Firma Fried. Krupp to Krauch (Generalbevollmächtigter für Sonderfragen der chemischen Erzeugung), June 23, 1941, HA Krupp WA 51/v 1083. The spring of 1941 saw a switch from the Blitzkrieg to total war. However, even at the end of the Blitzkrieg period, the enormous influence that I.G. Farben wielded over the Four-Year Plan and, therefore, the authority vested in Carl Krauch with regard to the exercise of this influence, was on the increase rather than on the decrease. See Petzina 1968a: 197; 1968b: 254; and Kudo 1980: 64–5. 60. Deutsche Mitsui Bussan AG to Fried. Krupp, Essen, October 1, 1942, HA Krupp WA 51/v 1053; Verkauf II Hamburg, Aktenvermerk, October 12, 1942, HA Krupp WA 51/v 1073. 61. Saito 1955: 29–32, and 102–5; Miyake 1975: 314–20. 62. Sommer 1962: Chap. 5. 63. Meskill 1966, cited in Miyake 1975: 21. 5

DOWNSTREAM TRANSFER OF THE KRUPP-RENN PROCESS

1. Findbuch zum Bestand WA 48: Besuchswesen, Essen, 1986, Historisches Archiv of Fried. Krupp GmbH (hereafter referred to as HA Krupp). For a profile of the Krupps, see Köhne-Lindenlaub 1982. 2. Vierteljahresbericht, HA Krupp FAH IV E38. 3. For more on Krupp’s relations with Japan, see the typed chronology, ‘Krupp-Japan. Ausführliche Zusammenstellung,’ August 10, 1983, HA Krupp. 4. Fried. Krupp 1960: 14. 5. Kudo 1979: 121–32. 6. Kudo 1992b: 241–3. 7. Johannsen 1934. 8. Nichi Man Renn-ho Tokkyo Kumiai to Kawasaki Jukogyo tono aidano Keiyakusho (Contract between the Japanese–Manchurian Association for the Joint Protection of the Renn-Process Patent and Kawasaki Heavy Industries), dated February 6, 1940, a document in the archives of Mitsubishi Kogyo Cement Kabushiki Kaisha (Mitsubishi Mining and Cement Co., Ltd). Mitsubishi Kogyo Cement later merged with Mitsubishi Metals Kabushiki Kaisha, to become Mitsubishi Materials Kabushiki Kaisha. 9. Vierteljahresbericht, HA Krupp FAH IV E38. 10. For more information on the activities that preceded the construction of plants (from initial negotiations up to the signing of contracts), see Kudo 1992a: 109– 19. 11. Johannsen to Grusonwerk, September 14, 1939, HA Krupp WA 105/8. 12. Showa Seikosho Kabushiki Kaisha (ed.) 1940: 86. In this respect it differed from Mitsubishi Kogyo and Kawasaki Shipbuilding. There is the possibility that we might be able to use granular iron as raw material for direct steel-making as a result of its improved quality and the progress in steelmaking technology; also, it is feasible to think of making good use of the special properties of low-temperature steel-making to treat granular iron in electric kilns and use it as the raw material for special iron ore (Ibid., p. 86).

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Notes

13. Xie, X.-s. and Zhan, K.-1. (eds) 1984: 277, 292. The authority on this is Showa Steel Works’ Dai 17 kai Eigyo Hokokusho (17th Business Report). 14. Mitsubishi Kogyo Cement Kabushiki Kaisha 1976: 341. 15. Mitsubishi Shoji Kabushiki Kaisha 1958: 209. 16. Mitsubishi Kogyo Cement 1976: 341. 17. Mitsubishi Shoji 1958: 209. 18. S. Yamazaki 1987: 207. 19. ‘Keirekisho’ (Historical Record), November 3, 1949, archives of Kawasaki Steel Co., Ltd. 20. Yamazaki 1987: 22. 21. Yamazaki, Kuji Kojo (Kuji Plant), Kawasaki Steel archival material. Another employee recalls: ‘Mr Nishiyama told us, “Why don’t we do it ourselves, without relying on the Germans?”’ Kaneda 1967: 220. 22. Yamazaki 1987: 207. 23. This information has been garnered from Tetsu to Ko (Iron and Steel), March 1965, p. 367. 24. ‘Soshiki Jin-in Haichi’ (Organization–Personnel Distribution), no date, Kawasaki Steel archival material. 25. Konno 1983: 38. 26. Nippon Yakin Kogyo Kabushiki Kaisha 1985: 42. 27. Konno 1983: 54–5. 28. Nippon Yakin Kogyo 1985: 117. See also pp. 40–4, 53–4, 57, 60, 67, and 69. 29. Okochi (ed.) 1941: 3. 30. For more on the plan to expand steel production during the Pacific War, see Hara 1987: 238–44. 31. Very little remains of the internal documents of Mitsubishi Kogyo. Hirose Seiji, head of the Chongjin Smeltery, took some important documents with him when he went back to Japan after the war, but later these were also scattered and lost. As a result, I am forced to analyze the position of the recipient of the technology by using documents from the deliverer of the technology. 32. Johannsen to Grusonwerk, September 15, 1939, HA Krupp WA 105/8. 33. Voss to Grusonwerk, January 9, 1939, HA Krupp WA 105/6. 34. Grusonwerk to Lemke, February 28, 1939, HA Krupp WA 105/7. 35. Remag to Grusonwerk, December 15, 1938, HA Krupp WA 105/6. 36. Grusonwerk to Mitsubishi Shoji Berlin, December 31, 1938; January 2, 1939, HA Krupp WA 105/6. 37. Lemke to Grusonwerk, February 2, 1939; Grusonwerk to Lemke, February 28, 1939, HA Krupp WA 105/7; Grusonwerk to Mitsubishi Shoji Berlin, January 30, 1939, HA Krupp WA 105/7. It is possible that at this time the Japanese side had the mistaken impression that fitters were engineers, and this is why they wanted only one, not two. As an example of mistaking a fitter for an engineer, see H. Yamazaki 1975: 62–3. 38. Voss to Grusonwerk, December 14, 1938; Voss to Grusonwerk, December 21, 1938, HA Krupp WA 105/6. 39. Voss to Grusonwerk, January 9, 1939, HA Krupp WA 105/6. 40. Voss to Grusonwerk, February 6, 1939, HA Krupp WA 105/7. 41. Grusonwerk to Mitsubishi Shoji Berlin, December 9, 1938, HA Krupp WA 105/ 6; January 12, 1939, HA Krupp WA 105/7. 42. Grusonwerk to Voss, December 2, 1938, HA Krupp WA 105/6. 43. Mitsubishi Shoji Berlin to Grusonwerk, December 13, 1938; Grusonwerk to Mitsubishi Shoji Berlin, December 21, 1938, HA Krupp WA 105/6. 44. Remag to Grusonwerk, December 16, 1938, HA Krupp WA 105/6. 45. Grusonwerk to Mitsubishi Shoji Berlin, December 2, 1938; Grusonwerk to Voss, December 16, 1938, HA Krupp WA 105/6.

Notes

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46. Grusonwerk to Voss, December 10, 1938, HA Krupp WA 105/6. 47. Völkel to Grusonwerk, August 3, 1939, HA Krupp WA 105/8. 48. Mitsubishi Kogyo Cement 1976: 342. The internal document that I have cited here is presumed to be one of the things Hirose Seiji brought back to Japan after the war. 49. Mitsubishi Shoji Tokyo to Lemke, July 18, 1939, HA Krupp WA 105/8. 50. Völkel to Grusonwerk, August 10, 1939; Völkel to Grusonwerk, August 17, 1939, HA Krupp WA 105/8. 51. Lemke to Grusonwerk, August 27, 1939, HA Krupp WA 105/8. 52. Völkel to Grusonwerk, August 26, 1939, HA Krupp WA 105/8. 53. Lemke to Grusonwerk, September 1, 1939, HA Krupp WA 105/8. 54. Telegram, Johannsen and Lemke to Grusonwerk, August 31, 1939, HA Krupp WA 105/ 8. 55. Johannsen to Grusonwerk, September 14, 1939, HA Krupp WA 105/8. 56. Ibid. An internal Mitsubishi document states: ‘After a discussion chaired by Executive Director Yamashita, it was decided to follow the opinions of Mr Johannsen.’ See Mitsubishi Kogyo Cement 1976: 342. 57. Johannsen to Grusonwerk, September 15, 1939, HA Krupp WA 105/8. 58. Mitsubishi Kogyo Cement 1976: 342. 59. Johannsen to Grusonwerk, November 29, 1939, HA Krupp WA 105/8. In Mitsubishi Kogyo Cement 1976: 342, however, the date for the firing of No. 4 kiln is given as October 21. 60. Johannsen to Grusonwerk, December 20, 1939, HA Krupp WA 105/8. 61. Johannsen to Grusonwerk, November 23 and 24, 1939, HA Krupp WA 105/8. 62. Johannsen to Grusonwerk, November 29, 1939, HA Krupp WA 105/8. 63. Suzuki to Johannsen, May 8 and 27, 1940, HA Krupp WA 105/8. 64. Grusonwerk, December 23, 1940, HA Krupp WA 105/8. 65. Kudo 1992b: 77. 66. Fried. Krupp 1960: 15; see also Fried. Krupp (no date): 17. 67. ‘Kuji Kojoshi’ (The History of Kuji Plant), a manuscript in the Kawasaki Steel archives. 68. From the above manuscript and other material in the Kawasaki Steel archives. 69. Nippon Yakin Kogyo 1985: 420. 70. Nihon Kagakushi Gakkai (ed.) 1965: Chap. 10, especially pp. 422–7; also Iida 1973: 278–91. 71. Yonekura 1991: 290–9. 6

DOWNSTREAM TRANSFER OF THE HABER-BOSCH PROCESS 1. Haber 1971: 90–1, 219. 2. ‘English translation of the words addressed to Mr Taki by Dr Münzing on the occasion of the transference of the Haber-Bosch Ammonium Sulphate Plant to the Japanese management’ (Taki Kagaku Kabushiki Kaisha, Historical Archives, File Box ‘Ryuan Kojo – H. Ahrens’). 3. Taki Kagaku Kabushiki Kaisha 1985: 83; see also ‘Kojo Chosahyo Showa 8 nen–Showa 22 nen’ (Plant Report Tables from 1933 to 1947), Taki Kagaku and Table 6.4. 4. Yui and Fruin 1983: 41–5. 5. Besprechung in Leuna über Auslandsprojekte, June 9, 1939, Nachlaß Pier (Dr Pier Projekte: Japan Jugoslavien Norwegen Polen Portgal M 1104 69), ‘1 Japan 1936–45,’ BASF Archiv. Furthermore, this engineer undertook the licensing in Japan of the I.G. process relating to synthetic oil. See also Chapter 7.

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Notes

6. With reference to the activities related to the Haber-Bosch process in Japan in the 1920s, refer to the following: T. Watanabe (ed.) 1968: 312–18; Morikawa 1980: 168–75; Hashimoto 1980: 48–9. In connection with technology transfer and the investment boom in the 1920s, refer to Hashimoto 1980: 49–55; T. Suzuki 1985: 62–108. 7. For greater detail, see Kudo 1992b: Chap. 5. As the patent for the Haber-Bosch process became ineffective from the beginning of 1933, the provision of technology by I.G. Farben after that date should, for accuracy, be described as technological assistance and not licensing. Actually there is no item in the contract between I.G. Farben and Taki Fertilizer Works relating to the implementation of the patent rights. However, the term ‘licensing’ has been taken in the wider sense to include the provision of technology, with or without patent rights. 8. Yui and Fruin 1983: 41–5. 9. For greater detail, see Kudo 1992b: Chap. 5. This analysis makes use of the scheme proposed by Uchida for the analysis of technology-transfer processes. See Uchida 1972: 69–72. 10. This is based on the definition of zaibatsu given by Morikawa 1980: 4: ‘A diversified managerial body under the exclusive ownership and control of a rich clan or family.’ See also Morikawa 1992: xvii–xviii. 11. Fortunately, the situation regarding historical materials for the two companies is comparatively good. For Taki Fertilizer Works, in addition to the company history, there are many in-company historical materials preserved. These company materials are the only internal data available relating to the theme of technology absorption of the HaberBosch process in Japan. Internal company historical data for Nippon Tar Kogyo have been lost, but reference was made to materials remaining in Mitsubishi Kasei Kogyo Kabushiki Kaisha 1966. Historical internal company data does not exist for the other companies. 12. Kikuchi’s life history up to the time of joining the firm was as follows. Born in 1891, he graduated from Tokyo Technical High School (now Tokyo Institute of Technology) in 1912. After working at the Taiwan Niitaka Sugar Refinery, he was employed by Suzuki Shoten (Suzuki & Co.) in 1915, responsible for oil refining, and in 1924 he was employed by Claude shiki Chisso Kogyo (Claude– Process Nitrogen Industry, later Daiichi Chisso Kogyo – the First Nitrogen Industry). This company was set up by Suzuki Shoten, which had received a license for the Claude process from L’Air Liquide, with the aim of manufacturing ammonium sulphate. A plant was constructed in Hikoshima, Yamaguchi Prefecture. From 1928 to 1929, for approximately six months, Kikuchi undertook an observation tour in Europe and the USA. In 1929, during this voyage, Suzuki Shoten went bankrupt and, as the managerial rights for Claude Process Chisso Kogyo went to Mitsui Kozan (Mitsui Mining), he became an employee of that company. From 1934 he worked at Toyo Koatsu Kogyo in Omuta City. Details from his Curriculum Vitae dated June 16, 1936, ‘Shugyo Kisoku – Shain Meibo’ (Work Regulations – Personnel List), Taki Kagaku. There were several business transactions relating to raw materials with Taki Fertilizer Works before the bankruptcy of Suzuki Shoten and Taki Kumejiro knew Kaneko Naokichi, the top manager of Suzuki. The above data was collected in an interview on February 1, 1988 with the present chairman of Taki Kagaku, Taki Rintaro. 13. From an interview held on February 2, 1988 with the ex-head of the manufacturing department of Seitetsu Kagaku Co., Ema Genzo. See Ema, ‘Nyusha Toji no Omoide’ (Recollections of my first company days), Befu Kagaku Shaho (Journal of Befu Chemical), no. 4, 1959: 7. Ema’s career is briefly as follows. He graduated from the applied chemistry section of Hamamatsu Technical High School (now Shizuoka University, Technology

Notes

14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

241

Department). He entered the company in March 1936. He was conscripted just a little over one-and-a-half years later, and this may explain the clarity with which he recalls the plant construction period especially. He returned to the company in autumn 1942. From Report on Personnel Ages and Life Histories; Work Regulations – Personnel List; Plant Report Tables from 1933 to 1947, Taki Kagaku. From Report on Personnel Ages and Life Histories; Work Regulations – Personnel List; Table of Ammonium Sulphate Plant personnel, Work Regulations – Personnel List, Taki Kagaku. Taki Kagaku 1985: 83; also from the interview with Taki Rintaro and one with Minami Ryotaro, the present managing director of the Personnel Department of Taki Chemical on February 1, 1988. Interview with Ema. Ema, ‘Nyusha Toji no Omoide,’ 1959: 7. Letter of February 26, 1936 from H. Ahrens’ affiliate to Taki Kumejiro, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. Taki Kumejiro Denki Hensankai (ed.) 1958: 122. H. Ahrens to Taki Fertilizer Works, September 11, 1937, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. Ema 1959: 8. From the monthly wage bills sent from H. Ahrens to Taki Fertilizer Works. Other data from Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku; Taki Kumejiro Denki Hensankai 1958: 122; Taki Kagaku 1985: 82; Ema 1959: 8. Finally the Germans started to arrive, and there were considerable fluctuations as to their number; at their most numerous they were around ten in all; the longeststaying and most familiar were the three from I.G., the employee from Borsig and the one from Bamag. . . . Incidentally, only Brennecke, the chief engineer, was accompanied by his wife, the others being single and staying in hotels (Interview with Ema).

24. H. Ahrens to Taki Fertilizer Works, September 21, 1937, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. 25. Taki Kumejiro Denki Hensankai 1958: 121–2, 286. 26. Interview with Ema. 27. Ibid. 28. Ema 1959: 8. 29. Ibid., pp. 7–9. 30. Ibid., p. 9. 31. Ibid., p. 8. 32. Personal communication from Ema, February 9, 1988. 33. H. Ahrens to Taki Fertilizer Works (Re. starting of your S/A Plant), June 10, 1937, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. 34. Interview with Ema. 35. Taki Kumejiro Denki Hensankai 1958: 64. 36. Memorandum (no date) Erläuterung zum Yahagi Vertrag, November 25, 1935; Stickstoffbesprechung, December 5, 1935, BASF Archiv. 37. Ema 1959: 8. 38. H. Ahrens to Taki Fertilizer Works, June 10, 1937, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. 39. Ibid., September 21, 1937. 40. Taki Kagaku 1985: 83. 41. H. Ahrens to Taki Fertilizer Works, January 16, 1938, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku.

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Notes

42. Ibid., January 29, 1938. 43. The salary and allowance for German engineers was 1,800–2,000 yen, for foremen 1,400 yen. The salary for the Japanese engineers was 50 yen starting salary and 55 yen for employees starting in 1944, and 150 yen for chief engineers (Interview with Ema, and 1944 personnel records). A rough calculation shows that the German engineers and chemists received 40 times the salary of the newly recruited Japanese engineers, and foremen 30 times. The total payroll for March 1938 was 16,334 yen and, though the actual amount is small compared to the total payment to I.G. Farben, the psychological burden for Taki Kumejiro may have been great. 44. H. Ahrens to Taki Fertilizer Works, March 7, 1938, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. However, Ema, responsible for the gas plant as of autumn 1942, gives a completely different reason: the chimney bricks at the aqueous gas generator would often fall out and interrupt plant operations. The reason was the oval-shaped chimney. Ema rectified it by changing it to a round shape and operations were smooth afterwards. Personal communication from Ema, February 9, 1988. 45. H. Ahrens to Taki Fertilizer Works, March 16, 1938, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. 46. Daily Reports of Ammonium Sulphate Plant, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku; and Taki Kagaku 1985: 83–4. 47. H. Ahrens to Taki Fertilizer Works, together with Agreement, April 22, 1938, Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. See also Vertragsmappe 1940, BASF Archiv. 48. Taki Kumejiro Denki Hensankai 1958: 123. 49. Taki Kagaku 1985: 87, 96. 50. Interviews with Taki and Ema. 51. After quitting the company, Kikuchi entered the Union of Ammonium Sulphate Manufacturers. After the war, in 1951, he entered Befu Kagaku (which took over from Sumitomo Taki Kagaku, set up with joint capital from Taki Works and Sumitomo Kagaku) on a temporary basis and was posted to the Mining Center in Tokushima Prefecture. After supervising the development of a sulphur mine, he died in 1953 (from a letter of March 26, 1951 from Kikuchi to Taki Saburo, the second president, and other data, Work Regulations – Personnel List, Taki Kagaku). 52. H. Ahrens to Taki Fertilizer Works (Estimate for a Nitrogen Plant to Produce 100,000 Tons per Year S/A). Ammonium Sulphate Plant – H. Ahrens, Taki Kagaku. Also lowtemperature carbonization of coal was considered. An eleven-page report bearing Kikuchi’s name and dated May 28, 1941, entitled, ‘Low-temperature Carbonization of Coal in Connection with the Ammonia Synthesis Industry,’ is extant. ‘Sumitomo Taki Kagaku’ (Sumitomo Taki Chemical), Taki Kagaku. 53. Ema 1959: 9. 54. From an interview recorded in Taki Kagaku 1985: 261. 55.

All of the section chiefs were without experience in fertilizers and the personnel posted below them were young engineers just graduated in 1935 and 1936. . . . Moreover, the workers actually handling the machinery who were under the section chiefs and supervisors were new to the work and this rapidly resulted in breakdowns, the only personnel with experience being the naval machinists. . . . Breakdowns occurred as early as the installation and attachment of machinery. Initially, the section with the largest number of breakdowns was the oxygen plant (Mitsubishi Kasei Kogyo Kabushiki Kaisha 1966: 160).

Notes

243

The installation of machinery was finished in October 1937 and operations began in November. On December 26, 1.5 tons of the first manufactured batch of ammonium sulphate were produced. This was almost exactly the same timing as for Taki Fertilizer Works. However, breakdowns once again developed. This was in the Winkler furnace, fourth section, and in the Alkachit refining section. Ibid. 56. Ibid., pp. 161–7. In 1938, it was noted: ‘In any case, nearly full operation was achieved for the beginning of September’ (Ibid., p. 167). 57. Ibid., p. 160. 58. Ibid., p. 115. 7 DOWNSTREAM TRANSFER OF THE I.G. PROCESS FOR SYNTHETIC OIL 1. The most important of the I.G. Farben internal records used in this study are those listed under Company archives, Germany, BASF AG Nachlaß Pier, in the Bibliography. The Pier Papers document the Dr Pier Projekte: Japan Jugoslavien Norwegen Polen Portgal M 1104 69, referred to as the BASF Archiv. These are the only primary sources on Japan in the archives of the three firms that succeeded I.G. Farben. The documents are in two groups: those for the period February 1936–July 1939 and those for May 1943–March 1945. Matthias Pier was one of the researchers who developed a tar-hydrogenation process in 1924. In the period under consideration in this chapter, he served as director of the high-pressure experimental laboratory (Hochdruckversuche). 2. Kudo (forthcoming): Chap. 5, section III, 1–2. From the beginning, very little consideration was given to exports. Aside from cost and shipping problems, the firm had difficulty predicting where a profitable export market might be. Part of the reason for this was no doubt that developing a synthetic oil production capability and sustaining a production capacity therein were crucial elements in achieving economic autarky and military selfsufficiency. Fuel could be stored, but any demand arising from such action would be extremely limited, and, in any case, importing synthetic oil could be considered inherently self-defeating. 3. In August 1928, a report issued by a Fuel Committee, made up of representatives from the various ministries, called for ‘helping industries that develop alternative fuels to oil and encouraging research in this area,’ and for ‘undertaking research in coal liquefaction.’ However, the report did not go beyond simply encouraging such work. In May 1930, a Ministry of Commerce and Industry commission of inquiry called for measures to encourage research into coal liquefaction as part of a national fuel policy, but it went no further. In September 1933, a Liquid Fuel Committee composed of ministry representatives drew up a set of guidelines for a national fuel policy. One of the four main proposals was for the promotion of alternative means of oil development. The committee called for industrial development in this area and cited the need to complete research on coal liquefaction and then develop concrete plans for large-scale production. In a rider to the Oil Industry Law of March 1934, the Lower House of the Diet attached a resolution calling for the Government to develop, as quickly as possible, a basic policy for the acquisition and development of oil resources and the production of alternative oils. See Takeda 1979: 205–8, 213, 221–2, and 226. See also Miwa 1985: Chaps 2–3. 4. Takeda 1979: 236. 5. Jinzo Sekiyu Jigyoshi Hensan Kankokai (ed.) 1956: 3–5. See also Nihon Tar Kogyokai (ed.) 1965: 305–7; and Tsusho Sangyosho (ed.) 1968: 277–8.

244

Notes

6. Enomoto 1976: 191, 194. 7. Preliminary calculations by government officials around 1937 estimated that gasoline produced by direct liquefaction would sell for 74–5 sen per gallon. For synthetic oil, the figure was 67–8 sen. Compared to gasoline produced from natural oil, these figures were higher by 22–30 sen. Thereafter, however, profitability was not an issue. See Okabe 1986: 85. 8. Jinzo Sekiyu Jigyoshi Hensan Kankokai (ed.) 1956: 7. 9. Enomoto 1976: 177. 10. Aus Besprechungen mit Tillmann und Vigeveno, July 18, 1938, BASF Archiv. 11. Uchida 1972: 69–72. 12. Except where noted, the account which follows is based on Hermann Bosch to Carl Krauch, February 21, 1936, BASF Archiv. South Manchurian Railway first wanted to make arrangements to introduce the I.G. process in 1928, in cooperation with the navy. It was in that year that the navy was given the task of researching coal liquefaction. 13. See Waki 1982: 139–41; Miwa 1985: Chap. 4, section 1. When the South Manchurian Railway looked into the possibilities of the introduction of technology for the I.G. process around 1928–29, I.G. Farben requested a license fee of 60 million yen, a figure far too high considering that at the time the annual research budget for the Navy Fuel Depot amounted to only 150,000 yen; therefore, South Manchurian Railway had no option but to refuse the order; incidentally, the navy’s Fuel Depot subsequently received around 600,000 yen from the company for research into hydrogenation (From an interview on August 17, 1987 with Watanabe Isaburo).

14.

15.

16. 17.

Watanabe had been in charge of fuel in the Second Section of the navy’s Munition Bureau. For the facts surrounding the assertion about the ‘severity of the licensing conditions,’ see also Miwa 1987: 165. Rights to the Bergius process were originally controlled by the International Hydrogenation Patent Company (IHP) and later by IHEC as well. IHP and IHEC were set up in The Hague by I.G. Farben, ICI, Standard Oil Co. (NJ), Standard Oil Co. of New Jersey – a 100 percent subsidiary of Standard Oil Co. (NJ) – and Royal Dutch Shell, each of which gave the rights to their hydrogenation process to these international organizations. See Mitsubishi Shoji Kabushiki Kaisha 1958: 213. At that time, there was a limited understanding in Japan of the ‘immense world presence’ of these organizations. See Abe 1938: 183–4. By 1927, I.G. Farben had already reached an agreement with Standard Oil Co. (NJ) for exclusive rights to hydrogenation technology. Royal Dutch Shell and ICI later became partners in this agreement. See Kudo (forthcoming): Chap. 5, section III, 3, and the document cited therein, and Reader 1975: 169–70. Manshikai (ed.) 1964: 619. For details on the South Manchurian Railway project, see Kagaku Gijutsucho, Shigen Chosasho (ed.) 1978: Chap. 3; and Miwa 1985: Chap. 4, section 2. Nippon Chisso Hiryo (Japan Nitrogenous Fertilizer), which had perfected synthetic ammonia production using the Casale process and was increasingly proficient at high-pressure production techniques, built a factory at Agochi in 1936 capable of an annual output of 50,000 kiloliters. See Kagaku Gijutsucho 1978: Chap. 2; Munakata 1978; and Shibamura 1981: 254, 258–62. Krauch to Bosch, March 31, 1936, BASF Archiv. Besprechung über Japanprojekt on March 4, 1937, TD Memo 1041, March 17, 1937; Besuch Ludwigshafen on April 12–15, 1937, TD Memo 1063, April 16, 1937;

Notes

18.

19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31.

32. 33. 34.

245

Kostenschätzung für die Hydrierung von Fushun Schieferöl, TD-B-3482, July 9, 1937, etc., BASF Archiv. Mitsubishi Kogyo Cement Kabushiki Kaisha (ed.) 1976: 336–69. This work does not mention the introduction of the I.G. process. For information on hydrogenation research at Mitsubishi Kogyo Kenkyusho (Mitsubishi Mining Research Institute), see Shibuya 1979: 31–5. Angebot auf eine Benzin-Anlage für die Mitsubishi Shoji Kaisha GmbH, Berlin, October 1937, BASF Archiv. Mitsubishi Shoji 1958: 214. Shibamura 1981: 254, 261. Except where noted, this section and the following section are based on Zusammenfassung über die japanischen Hydrier-Projekte, May 3, 1939, BASF Archiv. Nakahara noted in his diary that Ogura Oil asked for bids on reaction pipes, boilers, and compressors from Ishikawajima, Oriental Babcock, and Krupp. See Okuda 1981: 145– 6. Ruhl was originally sent to Japan to oversee the construction of methanol facilities. At this point, he was responsible mainly for handling technical matters involving nitrogen and synthetic oil. Ogura Oil hoped to move into production of high-octane gasoline and lubricating oil for airplanes and to this end set up a research institute in May 1937. See Okuda 1981: 140– 5. Zur Besprechung mit der IHEC über Japan on July 4, 1939, July 1, 1939, BASF Archiv. Okuda 1981: 148. Ibid., p. 147. Ibid., p. 148. Toa Nenryo Kogyo Kabushiki Kaisha (ed.) 1971: 79–94. Okuda 1981: 174–9. Besprechung in Leuna über Auslandsprojekte, June 9, 1939, BASF Archiv. The president of Imperial Fuel Industry was Makita Tamaki, former chairman of the board of Mitsui Mining. The position of head of the synthetic oil division in the Fuel Bureau of the Ministry of Commerce and Industry was controlled by the navy: I.G. Farben thus viewed pessimistically the outcome of its efforts to sell its technology to Toa Fuel Industry. It should be pointed out, however, that Mitsubishi contributed capital to Imperial Fuel Industry and that the army had its own commissioned officers in the Fuel Bureau. Makita also served as a consultant to Ogura and Nakahara sought his advice on all matters of consequence, including those involving I.G. Farben. There was a tendency on I.G. Farben’s part to view Ruhl, the navy, and Mitsui as a hostile block, but this was a misconception. For information on Makita’s role in Imperial Fuel Industry, see Morikawa (ed.) 1982: 320–4. For information on the close relationship between Nakahara and Makita, see Morikawa 1987: 16–25. Zur Besprechung mit der IHEC über Japan on July 4, 1939, July 1, 1939, BASF Archiv. Aktennotiz. Besprechung in Ludwigshafen über japanische Projekte, July 5, 1939, BASF Archiv. In Toa Nenryo Kogyo 1971: 356, Nakahara Nobuhei, who handled negotiations with I.G. Farben for Ogura Oil, is quoted as saying: Ogura ran into opposition from the navy just when it was about to succeed in bringing in technology [from I.G. Farben]. The navy was virulently opposed to Ogura’s actions on the grounds that, since it was doing research on hydrogenation at its Tokuyama facility, there was no need to buy IHP’s technology; and that, if

246

Notes such a purchase were made, patent agreements would require that Japan share its own technology with other nations as well. The Tokuyama Fuel Depot was the real reason for the navy’s intransigence. We were young at the time and argued vociferously for buying the IHP technology that I.G. Farben was selling because it was the world’s most advanced and also had substantial military application. The army, especially the Army Air Corps, thought that we should go ahead regardless of any opposition, and in the end Ogura Oil was unable to buy the rights to the I.G. process. IHP had set a price of 3 million yen, which was not unreasonable for Ogura Oil. We therefore lost the chance to get the most advanced technology available at very favorable terms. An application for rights from IHP was submitted in Japan in 1935 and was approved. See Okuda 1981: 149. Okuda quotes Kajiki Sueto, of the Ministry of Commerce and Industry’s Fuel Bureau, as noting that ‘Nakahara’s activities incurred the wrath of the navy, which called him a traitor’ (p. 148). See also Kajiki’s recollections of the matter in Sangyo Seisakushi Kenkyusho (ed.) 1978: 90. According to Watanabe Isaburo, who at the time was in the navy’s Munition Bureau, Ogura Oil President Ogura Fusazo visited Ujiie Nagaaki, head of the Munition Bureau, and told him of the activities of his employee Nakahara. This account is based on an interview with Watanabe on August 17, 1987. With regard to the navy’s opposition, Takahashi (1985: 67–8), of the Natural Resources Division of the army’s Supply Bureau, wrote: As of 1939, the army had plans to buy equipment from I.G. Farben to produce 60,000 kiloliters of liquefied coal annually, as well as catalytic cracking equipment from America’s UOP to produce 40,000 kiloliters annually. The navy opposed the idea of buying from I.G. Farben on the grounds that it had almost finished its own research on the necessary technology; and the Ministry of Finance opposed it because of a shortage of foreign currency reserves. So nothing was ever done in the matter; this, at least, is what I heard later.

35. 36. 37. 38. 39. 40. 41.

42.

When interviewed on June 30, 1986, Takahashi said: ‘The word in the army was that it had been outmaneuvered by the navy.’ But this may have been a reference to the army’s Fuel Depot project, which had been slated to start in 1938. For information on this project, see Nakamura 1983: 185–6. Zur Besprechung mit der IHEC über Japan, July 1, 1939, BASF Archiv. Besprechung in Leuna über Auslandsprojekte, June 9, 1939, BASF Archiv. See also Zur Besprechung mit der IHEC über Japan, July 1, 1939, BASF Archiv. Nissan’s own company history has no account of this. In Nihon Sekiyu Kabushiki Kaisha (ed.) 1958: 400–6 and 438–42, there is some discussion of supply and demand for synthetic oil, but no mention of Nippon Oil’s own project. With regard to the license fee, see Zur Besprechung mit der IHEC über Japan, July 1, 1939, BASF Archiv. Tokyo Gas began experiments in low-temperature carbonization in 1936 and succeeded in annually producing 30,000 tons of low-temperature tar. Thereafter, work was started on a hydrogenation facility for synthetic oil in Yokohama. Construction started on a lowtemperature carbonization furnace, which began partial operations in October 1940. But, unable to achieve acceptable results, the company abandoned this endeavor two years later. See Tokyo Gas Kabushiki Kaisha (ed.) 1956: 135–6. In 1938, Sumitomo began plans for methanol and isobutanol production. Plans were drawn up in February 1939 for a methanol plant in Sunagawa, Hokkaido. In May of that

Notes

43. 44. 45. 46. 47.

48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60.

61. 62. 63. 64.

247

year, plans were made for a facility in Anshan, Manchuria, to produce synthetic oil, ammonium nitrate, and butanol. See Sumitomo Kagaku Kogyo Kabushiki Kaisha (ed.) 1981: 71–3. See also Zur Besprechung mit der IHEC über Japan, July 1, 1939, BASF Archiv. Showa’s own company history makes no mention of the matter. For information on this firm’s plans and on plant construction, see Ibuki 1979: 16–21. Aus Besprechungen mit Tillmann und Vigeveno, July 18, 1938, BASF Archiv; Aktennotiz, Besprechung in Ludwigshafen über japanische Projekte, July 5, 1939, BASF Archiv. See Takahashi 1985: 112–14, for information on the army’s attitude toward this project. Mitsubishi Shoji’s records indicate that in 1921, Mitsubishi’s Berlin office acted on behalf of South Manchurian Railway and the navy in the matter of the Bergius process. Both parties submitted sample raw material to I.G. Farben for test purposes, and tests were conducted, but nothing else was done for quite a while. The office also entered into discussions with IHEC over patent rights, but IHEC’s terms were so stringent that no agreement was reached. See Mitsubishi Shoji 1958: 213. Aus Besprechungen mit Tillmann und Vigeveno, July 18, 1938, BASF Archiv. Besprechung in Leuna über Auslandsprojekte, June 9, 1939, BASF Archiv. Ibid. Zur Besprechung mit der IHEC über Japan, July 1, 1939, BASF Archiv. Besprechung in Leuna über Auslandsprojekte, June 9, 1939, BASF Archiv. H. Ahrens’ Ariga Teru advised Nakahara to consider the Houdry catalytic cracking process. See Okuda 1981: 210. Ibid. No reports have been found for the two subsequent meetings held on June 14 and 15. According to Jinzo Sekiyu Jigyoshi Hensan Kankokai 1956: 7, this ‘general license’ for the Fischer process was to cover Japan, Manchuria, and the five provinces of North China as well as the rights to all technological advances made through 1937 at Ruhrchemie. Zusammenfassung über die japanische Hydrier-Projekte, May 3, 1939, BASF Archiv. Aktennotiz, Besprechung in Ludwigshafen über japanische Projekte, July 5, 1939, BASF Archiv. Details on this are unavailable. No statistical data are included in the records. Aus Besprechungen mit Tillmann und Vigeveno, July 18, 1938, BASF Archiv. The popular view ascribes I.G. Farben’s failure mainly to the constrictions imposed by the British and US companies that, together with I.G. Farben, had formed an international hydrogenation technology patent pool. For example, Anderson stated (1975: 119–20) that in December 1938, Standard Oil Co. (NJ) informed the US State Department of the negotiations between I.G. Farben and the Japanese navy. In February of the following year, 1939, Royal Dutch Shell also informed the British Foreign Office of the same. As both the State Department and the Foreign Office advised opposition to this, IHEC (or IHC, according to Anderson’s abbreviation) did not give permission for the licensing of the I.G. process to Japan. However, my view is that subsequent to the situation as outlined here, in the summer of 1939, I.G. Farben and IHEC made an agreement regarding the licensing and export of equipment to Japan. Bosch to Krauch, February 21, 1936, BASF Archiv. Kudo (forthcoming): Chap. 5, section III, 2. Jinzo Sekiyu Jigyoshi Hensan Kankokai 1956: 233. See also Murata’s observations (1968: 526). For details on the failure of the 1937 policy to promote synthetic oil production, see Miwa 1987: 69–74; and 1987b: Chap. 5, section 1. Enomoto 1976: 151–2.

248

Notes

65. Mitsubishi Shoji 1958: 214; Takahashi 1985: 111–12, 115. 66. Jinzo Sekiyu Jigyoshi Hensan Kankokai 1956: 16; Takahashi 1985: 155–64. 67. Angebot auf eine Anlage für die Kaiserliche Japanische Armee, March 1944, BASF Archiv. 68. Vertrag, January 11, 1945, BASF Archiv. See also Kinoshita 1979: 12–13 and 1981: 133– 4; Mikami 1981: 254–5; Mitsubishi Shoji 1958: 214; and Takahashi 1985: 190–4. 69. Pier to Kelchner (Rüstungsvollmächtigten Südwest des Reichsministers für Rüstung und Kriegsproduktion), March 24, 1945, BASF Archiv. 70. Pier to Bütefisch, March 25, 1945, BASF Archiv. 8 UPSTREAM TRANSFER OF THE SHIMADZU PROCESSs 1. Metallbank and Metallurgische Gesellschaft had formed a joint profit entity from 1920 and in 1922 merged to form Metallbank und Metallurgische Gesellschaft. This was renamed Metallgesellschaft Aktiengesellschaft in 1928. The abbreviated name Metallgesellschaft is also used for the period prior to 1928 in this chapter. Its nominal capital in 1938 amounted to 4 million reichsmarks. 2. The general outline is given in Mitsubishi Shoji Kabushiki Kaisha 1958: 186–7. The remarks found in Mitsubishi Shoji Kabushiki Kaisha 1986 do not add anything to the facts clarified by its 1958 work. I was fortunate to have the opportunity to examine historical documents kept in the Rechtsabteilung of Metallgesellschaft’s Company Archives, and information found there was used in this chapter. However, historical documents relating to Degussa, the other main parent company involved, could not be discovered. 3. Kudo 1992b: 65–6. 4. Cooperation Agreement and Preliminary Agreement, Metallgesellschaft AG, Historisches Archiv, 88–2. Hereafter, the Metallgesellschaft AG, Historisches Archiv is abbreviated as HA Metallgesellschaft. 5. By December 1925 Mitsubishi Goshi (Mitsubishi Ltd) realized that the export of invention patents was just as, if not more, important than the export of commodities, and that unfortunately the achievements of Japan in this area were extremely poor. See Mitsubishi Shoji Kabushiki Kaisha 1958: 186–7. 6. HA Metallgesellschaft 19–12. 7. Haber to Metallgesellschaft, June 15, 1925, HA Metallgesellschaft 88. Tamaru was active in introducing into Japan the Haber-Bosch process and the General Chemical process relating to ammonia production. See T. Suzuki 1988: 239. 8. Metallgesellschaft to Haber, June 27, 1925, HA Metallgesellschaft 88. 9. Metallgesellschaft to Mitsubishi Shoji Berlin, September 7, 1925, HA Metallgesellschaft 88. 10. Haber to Metallgesellschaft, June 15, 1925; Metallgesellschaft to Haber, July 2, 1925, HA Metallgesellschaft 88. 11. Vertrag, December 16, 1925, HA Metallgesellschaft 88–2. 12. Investors on the Mitsubishi side besides the parent company (Mitsubishi Goshi) include the various affiliated companies of Mitsubishi in mining, ship building, iron, internal combustion engines, trading, paper manufacture, and glass. See Mitsubishi Shoji 1958: 187. 13. During the negotiations between I.G. Farben and Japanese firms with regard to the licensing of the I.G. process for synthetic oil, a central point of dispute was the question of whether the exchange of improvements and experience should be made mandatory or not. See Chapter 7, section II, 3.

Notes

249

14. Gründungs-Protokoll, March 10, 1926, HA Metallgesellschaft 01–6. 15. Schmidt-Fellner, Notiz betr. Japan, September 7, 1925, HA Metallgesellschaft 88. Kerschbaum, with the title of ‘professor,’ was a member of the supervisory board of Metallgesellschaft (not of Degussa) between 1927–28 and 1929–30. 16. Uchida 1977: 136–7. 17. Shimadzu Seisakusho Kabushiki Kaisha 1967: 28–9, 33–4. 18. Ibid., pp. 47–8. 19. Inoue 1939: 36–8, 57–73. See also Dainippon Toryo Kabushiki Kaisha 1969: 16–17, 25–6. This company was established as a paint company after its separation from Nippon Denchi in July of 1929. 20. Incidentally, the record in English made on the approval of the English patent reads: Lead oxides and the process to manufacture the same; Improvements in processes of manufacturing metal powder; Improvements in or relating to the manufacturing of storage batteries; Improvements in a paint, a process of manufacturing powder of lead sub-oxide intermingled with powder of metallic lead; and A process of manufacturing lead oxides (Nippon Denchi to Degussa, February 17, 1926, HA Metallgesellschaft 01S–22). 21. In May 1926, five patent submissions were approved. However, immediately after this, Electric Storage Battery Co., the largest US battery manufacturer, which had requested the transfer of Shimadzu’s patent, made use of the particular situation in the USA, one that gave precedence in patent accordance to parties which had actually implemented technology rather than to the earliest patent application, and filed a claim against Shimadzu’s patent as conflicting with their own submission. Shimadzu, receiving the aid of another US company, USL Battery Corp., fought the case, which reached a third hearing. In June 1932, the Supreme Court found in favor of Shimadzu. Following this, in 1933, the patent rights were accorded to USL for a sum of US$350,000. See Nippon Denchi Kabushiki Kaisha 1937: 179–97. 22. Ibid., pp. 169–70. See also Mitsubishi Shoji 1958: 187–8, though there are slight discrepancies between the two accounts. 23. Shimadzu Seisakusho 1967: 29. 24. Ibid., pp. 176–7. 25. Included in the files for ‘Juyakukai Gian oyobi Ketsugiroku narabini Juyo Shorui Tsuzuri’ (the Minutes and Resolutions of the Directors’ Meeting and Important Documents) of Nippon Denchi for July 16, 1925 and August 18, 1925, Nippon Denchi archives. 26. Degussa to Nippon Denchi, February 17, 1926, HA Metallgesellschaft 01S–2. 27. Ost Lurgi to Nippon Denchi, June 1, 1926, HA Metallgesellschaft 01S–2. 28. Shimadzu Genzo (Nippon Denchi) to Ost Lurgi, January 15, 1927, HA Metallgesellschaft O1S–1; Metallgesellschaft, August 3, 1927, HA Metallgesellschaft 01S–2. 29. Included in the files for the Minutes and Resolutions of the Directors’ Meeting and Important Documents of Nippon Denchi for November 9, 1926, Nippon Denchi archives. 30. Degussa to Metallgesellschaft, August 5, 1927, HA Metallgesellschaft 01–1. 31. Nippon Denchi 1937: 170. Mitsubishi Shoji 1958: 87, which states: ‘Patents for applications such as the manufacture of paints and related patents have been obtained, but efforts with regard to the vital lead powder manufacturing process remained fruitless to the end.’ I have used the statement of Nippon Denchi. 32. Nippon Denchi 1937: 162, 168, 197. 33. Technology exports besides this handled by Mitsubishi Shoji included the MK steel of

250

34.

35. 36.

37.

Notes Honda Kotaro (Tohoku Imperial University), the permanent magnet of Mishima Tokushichi (Tokyo Imperial University), and the seacraft stabilizer of Motoyoshi Shintaro (Mitsubishi Heavy Industries). Mitsubishi Shoji 1958: 187–8. Degussa to Metallgesellschaft, August 5, 1927, HA Metallgesellschaft 01–1. However, Degussa wished to withdraw from the contract in two years (that is, four years after the conclusion of the contract and in accordance with Article 13 of the contract) and not immediately. Degussa to Metallgesellschaft, July 4, 1928, HA Metallgesellschaft 88. As a counter-tactic to foreign purchasing maneuvers, both companies held a third share each of the preference shares of Degussa, and made long-term contracts with Degussa concerning sales of metallic natrium and boric acid soda. Haber 1971: 288. Metallgesellschaft to Mitsubishi Goshi, December 29, 1927, HA Metallgesellschaft 88. Haber was a member of the supervisory board for Metallgesellschaft between 1929–30 and 1932–33. The chairman of the supervisory board between 1927–28 and 1938–39 was Carl Bosch. Bosch, who was the codeveloper of the Haber-Bosch process, was strongly opposed to Haber’s policy of technical cooperation with Japan. His motivation was to crush ‘the almost morbid ambition of the Japanese.’ See Bosch to Herren des Gemeinschaftsrates, June 19, 1925, Hoechst Archiv; Kudo 1992b: 75–8. However, there is no trace of a confrontation between these two with regard to the Japan strategy arising in the meetings of the board. The negative conclusions had already appeared on levels lower than that of the board meetings. Metallgesellschaft to Mitsubishi Shoji Berlin, August 11, 1927, HA Metallgesellschaft 01–1 There is in fact considerable scope for Japanese use of German inventions and ideas. However, achievements in this connection to date have been surprisingly poor. For Ryoyo the only example that has had commercial value is the import of the manufacturing rights and apparatus for the Cottrell dust catcher of Lurgi. Besides this there is the formalin license of the Edogawa Works arranged inside the company. Further sales opportunities have tended rather to be involved with the business activities of Mitsubishi Shoji Berlin, and Mitsubishi Shoji Berlin handled negotiations with the consent of Ryoyo in the cases of negotiation with Manchurian Railway for Lurgi’s own sulphur apparatus, and in the sales contract arranged with Showa Fertilizers. Moreover, in the case of invention patents, with the exception of those relating to Metallbank and DGSS (Degussa), these were all handled by Mitsubishi Shoji Berlin, as for example in the case of the purchase by Nippon Kogaku of the patent rights for the Gertz Periscope (Mitsubishi Shoji 1958: 187).

38. 39. 40. 41. 42. 43. 44. 45. 46. 47.

Metallgesellschaft to Degussa, July 2, 1928, HA Metallgesellschaft 88. Metallgesellschaft to Mitsubishi Goshi, November 16, 1928, HA Metallgesellschaft 88. Metallgesellschaft to Mitsubishi Goshi, March 19, 1929, HA Metallgesellschaft 88. Mitsubishi Goshi to Metallgesellschaft, July 16, 1929; Metallgesellschaft to Degussa, August 24, 1929, HA Metallgesellschaft 88. Mitsubishi Goshi to Metallgesellschaft, October 22, 1929, HA Metallgesellschaft 88. Metallgesellschaft to Mitsubishi Goshi, November 27, 1929, HA Metallgesellschaft 88. Mitsubishi Shoji Berlin to Metallgesellschaft, January 27, 1930, HA Metallgesellschaft 88. Zusatzvertrag, June 4, and July 21, 1930, HA Metallgesellschaft 88. Mitsubishi Shoji Berlin to Metallgesellschaft, June 23, 1930, HA Metallgesellschaft 88. Metallgesellschaft to Degussa, September 1, 1930, HA Metallgesellschaft 88.

Notes

251

48. Metallgesellschaft to Mitsubishi Shoji Berlin, August 20, 1930, HA Metallgesellschaft 88. 49. Metallgesellschaft to Mitsubishi Goshi, September 6, 1930, HA Metallgesellschaft 88. 50. Metallgesellschaft to Mitsubishi Goshi, October 17, 1931, HA Metallgesellschaft 88. 51. Vertretungs-Vertrag, October 28 and 31, 1931, HA Metallgesellschaft 88–18. 52. Ost Lurgi in Liquidation, March 11, 1933, HA Metallgesellschaft 01–9. 53. Mitsubishi Shoji 1958: 187. 54. There is the case of the confrontation that developed between C. Illies and Mitsubishi Shoji concerning the export to Japan of weaponry manufactured by Rheinmetall. See Chapter 3 of this volume. 55. Shimadzu Seisakusho 1985: 276. 9

GIVING UP CONTROL 1. Feldenkirchen 1988: 30. 2. In 1935, AEG had agency offices in Tokyo, Osaka and Moji. Its main exports were motors, generating equipment, switching equipment, high-pressure cable, electric locomotives, and railway materials (AEG-Zeitung, AEG Firmenarchiv). In AEG’s Frankfurt archive, there are almost no remaining materials related to Japan. 3. In 1911, Bosch began its first agency arrangement with the Yokohama trading company Andrews & George, and in the following year it opened a repair shop in the same city. It then transferred technicians to Japan, who undertook repairs and the training of Japanese staff. After the First World War, Bosch chose C. Illies & Co. as its sole agency. C. Illies handled automobile parts and accessories such as electromagnetic plugs, fuel supply parts, lighting appliances, and starters. Bosch restarted its repair shop, calling it a ‘service factory.’ In 1938 it opened a service factory in Nagoya. Then it transferred manufacturing technology for diesel engine fuel injection pumps to Diesel Kiki Kabushiki Kaisha (Diesel Equipment Co., Ltd), established in 1939. See Der Bosch-Zünder, no. 10, 1920, p. 228; no. 2, 1938, p. 35, Bosch Firmenarchiv; Bosch to C. Illies & Co., June 30, 1920, Bosch Firmenarchiv, 59/4; Robert Bosch GmbH 1961: 30– 2, 34, 52, 68–70; Diesel Kiki Kabushiki Kaisha 1981: 23–8; Robert Bosch Japan Kabushiki Kaisha 1984: 133–6 in particular. 4. At first the company made C. Illies its agent, but later it switched to the London office of Takata Shokai (Takata & Co.), and it also used M. Raspe & Co. See Vogt 1979: 234– 49. 5. Although the telephone is generally said to have been invented by an American, Alexander Graham Bell, according to the German literature, a working experiment was publicly carried out in 1861 – that is, fifteen years before Bell’s invention – by Philipp Reis, who can therefore be considered the inventor. See Hebel 1964: 386; von Weiher 1976: 103. However, Siemens & Halske acquired a patent in Germany only in December 1877, that is, one year after Bell’s invention. Its patent for the manual switchboard, in January 1881, also followed the original American patent. Von Weiher and Goetzeler 1977: 39, 40–1. This is an expanded translation of von Weiher and Goetzeler 1972. See also von Weiher 1980.

252

Notes

6. Nippon Denshin Denwa Kosha (ed.) 1953: 13–14. Also, for the early development of the telephone industry, see Fujii 1991. 7. Imazu 1980: 139; Uchida 1989: 164–5. 8. Nippon Denki Kabushiki Kaisha 1962: 45, 50. 9. Takenaka 1991: 158. Also, in regard to US companies’ superior position in the Japanese market for electrical machinery, see ibid., pp. 97–100. Also, in relation to Siemens’ business activities in Japan before the First World War, see Takenaka 1989, 1996. 10. Takenaka 1991: 131. 11. Fuji Tsushinki Seizo Kabushiki Kaisha 1964: 3–4. 12. Von Peschke 1981. However, the details of the agreement are unclear. 13. Verhandlungen in London zwischen Siemens & Halske bezw. Siemens Brothers, Western Electric Co. und British Automatic Telephone Co., June 14–27, 1913, Siemens-ArchivAkte (hereafter referred to as SAA) 4/Lf 533 Carl Friedrich von Siemens. For copies of the material concerning negotiations between Siemens and Western Electric, thanks to Professor Takenaka Toru. 14. H. Watanabe 1981: 217–18. This work is also translated into English in Watanabe 1984. On the influence of the Versailles Treaty on the German electrical machinery industry, see H.G. Schröter 1983: 323–8. 15. Watanabe 1981: 227–8. 16. Ibid. 17. Feldenkirchen 1988: 33. 18. Watanabe 1990: 267. 19. Siemens had already, before the First World War, developed a plan for local manufacturing in response to the gains made by Japanese manufacturers. Moreover, it had actually taken the initial steps toward local manufacturing. Takenaka 1991: Chap. 8. 20. Aussprache, November 22, 1924 über die künftige Behandlung des Telephongeschäftes in Japan, SAA 20/La 216. 21. Nippon Denki 1962: 174–5. 22. Fuji Denki Seizo Kabushiki Kaisha 1957. Wada Tsunesuke became a director on the occasion of the founding of Fujitsu. Later, he became the president of Fuji Electric. See Wada’s reminiscences, ‘Denwa Sochi Seizo nitsuite’ (Concerning telephone apparatus manufacturing), in Fuji Denki 1957: 44–5, and T. Wada, ‘Mein Weg durch 80 Jahre. Erinnerungen aus Dankbarkeit. Aus dem Japanischen übersetzt von Sato Kimiyoshi,’ pp. 48–50, SAA. 23. Feldenkirchen 1988: 22. 24. Concerning the joint-venture company Fuji Electric, see Fuji Denki Seizo 1957: 1–8, and, particularly for details of the first half of the negotiations, see Watanabe 1981 and 1990. 25. Watanabe 1990: 279–80. The original material is Vertrag, June 1, 1921, SAA 11/Lf 480 Köttgen. Momotani (ed.) 1955, incorrectly introduces the end of Article 14 as follows: ‘ . . . supply of electric cable, electric wire, and telephone equipment’ (p. 15). This might be based on the result of later negotiation for revision of the agreement. 26. Based on the following letter six months after the signing of the memorandum: International Western Electric Co. to SH, January 25, 1922, SAA 11/Lf 480 Köttgen. 27. Keßler to Köttgen, December 29, 1921, SAA 11/Lf 480 Köttgen. We might even say that Keßler’s motive in writing in such detail on the agreement with Furukawa was to make it clear that the inconsistency was not his responsibility. 28. International Western Electric Co. to SH, January 25, 1922, SAA 11/Lf 480 Köttgen. 29. Yoshimura to Carl F. v. Siemens, December 21, 1921, SAA 11/Lf 480 Köttgen.

Notes

253

30. 31. 32. 33. 34. 35. 36. 37. 38.

Furukawa Kogyo Kabushiki Kaisha 1976: 331–3. Fuji Tsushinki Seizo 1964: 10–11. Ibid., p. 9. Momotani 1957: 36, SAA. Keßler, Bericht, November 20, 1922 and November 24, 1922, SAA 11/Lf 480 Köttgen. Fuji Denki 1972: 6; Fuji Tsushinki 1964: 9. The quotation is from the latter. Reyss and Keßler, Rundschreiben, November 3, 1923, SAA 11/Lf 480 Köttgen. Fuji Denki 1972: 44. Fuji Tsushinki 1976: 15.

39.

An important question here is why Furukawa insisted on the value of the investment as 500,000 yen, and why it excluded communications equipment from the contract. If Furukawa in truth had understood Siemens’ technology and could have foreseen the future development of communications equipment, it would not timidly have insisted on its evaluation, but rather have compromised somehow to attain its goal. In that case the new joint company would have suffered from the destruction by fire of Furukawa’s factory and other facilities, but the newly introduced Siemenstype telephone switchboard would have been designated directly, and it would have been able to meet demand through imports, and then it could quickly have adapted to the period of domestication of manufacturing. Let us call this a problem of outlook and judgment. Later, in response to the demand of Fuji Electric, Siemens inserted communications equipment business in the contract as before, gently and without charge. Only because of it, Fuji Electric was able to add communications equipment importing to its business line that was previously handled by SiemensSchuckert Denki KK, and with the later problem of domestication of manufacturing, although it had unspeakable trouble, in the end it received Siemens’ assent and based on that cooperation it was able to realize this. Based on this, we can see how much management’s outlook and judgment affected the destiny of the company (Fuji Tsushinki 1976: 15).

40. Siemens Kabushiki Kaisha 1987: 27. Siemens KK 1987, is the German-language version. See also Siemens in Japan, zusammengestellt von Schoen, SAA 68/ Li 151; and ‘JAPAN, Zusammenfassungen,’ which possibly is the basic preparatory material for the first two publications. In addition, a study by a Siemens insider is Wilhelms 1982. 41. For details see Nippon Denshin Denwa Kosha 1953: 25–30. 42. Momotani 1957: 41–2. See also Momotani, ‘Chronology of Siemens-Schuckert Denki K. K., Tokyo, 1861–1944,’ SAA 68/Ls 913. 43. Mohr to CVU, December 16, 1924, SAA 20/La 216. 44. Aussprache, November 22, 1924 über die künftige Behandlung des Telephongeschäftes in Japan, SAA 20/La 216. There was only one Japanese, Inagaki Heitaro, on this committee, which was chaired by Reyss. 45. Momotani 1955: 43. 46. Fuji Tsushinki 1964: 11. Wada recollects as follows: Siemens offered the very liberal interpretation that it was fine to include telephone equipment in the contract as before, as requested by Fuji, since it was included in the original contract, and in that way it was decided that they should properly transfer the sales rights to our company (Nihon Keizai Shinbunsha (ed.) 1980: 280).

254

47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78.

79. 80. 81. 82. 83.

Notes However, Siemens was liberal only in the area of sales rights. The export strategy remained unchanged, and this was only a change in distribution channels. Siemens was not considering local manufacturing. Momotani 1955: 45, 47. Nippon Denshin Denwa Kosha 1953: 14–15. Von Weiher and Goetzeler 1972: 67–8. Fuji Tsushinki 1964: 4. Ibid., p. 6. For details see Nippon Denshin Denwa Kosha 1953: and 1960: 48–54. Fuji Tsushinki 1964: 6, 11. For details see Nippon Denshin Denwa Kosha 1953: 115–17. Fuji Tsushinki 1964: 11–12. Hasegawa 1983: 294. Mohr to CVU, May 2, 1927, SAA 20/La 218. Fuji Denki 1972: 43. Nippon Denshin Denwa Kosha 1953: 332. Oki Denki Kogyo Kabushiki Kaisha 1981: 121–3. Momotani 1955: 47–9. Ibid., pp. 49, 51. Mohr to Reyss, May 18, 1929; Reyss to Mohr, June 19, 1929, SAA 20/La 219; Zusammengehen mit der Konkurrenz der Fusi [Fuji Electric], no date, SAA 4/ Lf 802 Carl Friedrich von Siemens. Unknown to Natori, April 14, 1930 (the most likely author is Franke); Unknown to C.F. v. Siemens, April 15, 1930, SAA 4/Lf 802 Carl Friedrich von Siemens. Fuji Tsushinki 1964: 13. Momotani 1955: 52. Fuji Denki 1972: 22, 25, 121. Yoshida 1979: 74–5. Natori to CVU, November 20, 1928, SAA 20/La 219; Hirschnitz to Köttgen, July 18, 1927, SAA 11/Lf 140 Köttgen; July 18, 1928, SAA 20/La 928. The Teikoku Koshinsho, October 8, 1928, SAA 20/La 218. Natori to Reyss, February 27, 1930; Reyss to Natori, May 22, 1930; Mohr to Reyss, June 17, 1930; Nakagawa to Reyss, May 23, 1930, SAA 20/La 219. Fuji Denki 1972: 28–9. Ibid., pp. 29–31. Franke, Wada to CVU, September 6, 1929; Reyss to Fusi [Fuji Electric], September 30, 1929, SAA 20/La 219. Mohr to Reyss, CVU, January 19, 1929; Aktennotiz, March 4, 1929; Aktennotiz, March 14, 1929, SAA 20/La 219. Mohr to Reyss, July 24, 1930; Reyss, August 27, 1930; Frenzel, SH to Reyss, September 30, 1930; Reyss to Mohr, October 9, 1930, SAA 20/La 219. CVU to Mohr, January 5, 1929, SAA 20/La 219. Already before the war, Siemens had experienced friction with Sumitomo about export areas, the latter wanting to sell throughout Asia. Takenaka 1991: 231. As a result, Siemens had already once considered withdrawal from a joint venture in Japan. Ibid., p. 149. Hasegawa 1985: 281–5. Zederbohm to Reyss, June 30, 1928, SAA 20/La 218; CVU to Mohr, January 5, 1929, SAA 20/La 219. Mohr to Reyss, CVU, January 19, 1929; Mohr to CVU, February 13, 1929, SAA 20/ La 219. Zusammengehen mit der Konkurrenz der Fusi [Fuji Electric], no date, SAA 4/ Lf 802 Carl Friedrich von Siemens. Nakagawa to Reyss, May 23, 1930; June 30, 1930, SAA 20/La 219. International

Notes

84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94.

95. 96. 97. 98.

99.

255

General Electric, which was in charge of General Electric’s overseas affairs, in 1919 signed an agreement with its Japanese subsidiary, Shibaura Engineering Works, recognizing that company’s exclusive rights in Japan. Westinghouse and Mitsubishi Electric concluded a patent agreement in 1923. Mitsubishi Denki Kabushiki Kaisha 1951: 91. Keßler to Köttgen, December 29, 1921, SAA 11/Lf 480 Köttgen. Mohr to Reyss, CVU, January 19, 1929, SAA 20/La 219. Aktennotiz, March 14, 1929. Aktennotiz, March 4, 1929; Aktennotiz, March 14, 1929; Telegramm to Mohr, March 18, 1929; Reyss to Mohr, March 18, 1929, SAA 20/La 219. Zusammengehen mit der Konkurrenz der Fusi [Fuji Electric], no date, SAA 4/ Lf 802 Carl Friedrich von Siemens. Mohr to Reyss, May 18, 1929, SAA 20/La 219. Reyss to Mohr, June 19, 1929, SAA 20/La 219. Reyss to Nakagawa, September 19, 1929, SAA 20/La 219. Franke to CVU, August 30, 1929, SAA 20/La 219. Hasegawa 1983: 292. The original material is ‘1929 nen 11 gatsu 11 nichi Furukawa Kanbu to Siemens Sha Köttgen Hakushi to Iken Kokan Yoryosho’ (A Record of the November 11, 1929 negotiations between Furukawa’s management and Dr Köttgen of Siemens), Furukawa Electric Industry archival material. Incidentally, Köttgen came to Japan in October and November of 1929 in order to participate in the World Engineering Conference that had opened in Tokyo (a combined conference of the World Power Conference and the World Industrial Studies Conference). Köttgen was asked by Tokyo Imperial University Professor Kamo Masao to assist in the opening of the conference in Tokyo. SAA 11/Lf 420 Köttgen. Hasegawa 1983: 285. For details, see ibid., pp. 285–90. Natori to Reyss, July 13, 1930; Reyss to Nakagawa, no date, SAA 20/La 219. Hasegawa 1983: 286. Protocol of second meeting of electrical manufacturers held by the Industrial Rationalization Bureau on February 2, 1931; Remarks of second meeting of electrical manufacturers on February 2, 1931; Mohr to CVU, February 16, 1931, SAA 4/Lf 802 Carl Friedrich von Siemens. Mohr to CVU, February 16, 1931; Köttgen to Mohr, March 31, 1931; Köttgen to Mohr, April 1, 1931, SAA 4/Lf 802 Carl Friedrich von Siemens; Aktennotiz, May 11, 1931, SAA 4/Lf 802 Carl Friedrich von Siemens. These materials provide evidence for the conjecture: ‘It is hard to believe that the foreign companies were unconditionally against the holding company plan and made its establishment impossible’ (Hasegawa 1983: 289). In fact, the foreign companies even enthusiastically supported the holdingcompany plan.

100. Natori to CVU, April 15, 1931, SAA 20/La 219. Director Mohr also at the same time explained the situation to Siemens’ headquarters. There were contradictions between Mohr and Natori’s explanations. Mohr to Reyss, April 18, 1931; Reyss, Bemerkungen, May 7, 1931, SAA 20/La 219. 101. Hasegawa 1983: 289. 102. Wada to Reyss, July 10, 1931, SAA 20/La 220. 103. Hasegawa 1983: 293–5, 297–303, 321–2. 104. Hasegawa 1992; Giannetti 1992. 105. Yoshida 1979: 73–4. 106. Feldenkirchen 1988: 52–3. Also, Fujisawa 1982: 52, 73–4. Also in regard to ITT’s acquisition of Western Electric, see Abo 1983: 515 and 1984: 295.

256 107. 108. 109. 110. 111. 112.

113. 114.

115. 116.

117. 118. 119. 120. 121.

122. 123. 124. 125. 126. 127. 128.

Notes Feldenkirchen 1988: 53. Ibid., p. 42. Ibid., pp. 39–41, 43. Ibid., p. 25 (the original material is in SAA 15/Ln 194; 11/Lf 287 Köttgen); Fujisawa 1982: 60. Feldenkirchen 1988: 52, 56. Also see Harumi 1987: 4. Fujisawa 1988: 82. Itagaki (1977: 61) emphasizes GE’s influence on Siemens. However, we must observe that GE acquired not shares but bonds of Siemens. Feldenkirchen is of the opinion that GE’s influence on Siemens did not increase. See Feldenkirchen 1988: 34–5. Ibid., pp. 32–3. The Pupin coil made possible a relatively clear transmission over long distances, by allowing a substantial decrease in the attenuation created by voice transmissions through cable. This was a technological innovation before the development of amplification technology. Zederbohm to Reyss, June 30, 1928, SAA 20/La 218. Fuji Tsushinki 1964: 12, and Momotani 1955: 52. Momotani, ‘Chronology of Siemens-Schuckert Denki K. K.,’ pp. 48–9, 51–2, 57–8, 61. Also, Gesellschaft für drahtlose Telegraphie mbH, Telefunken, was established in 1903 through a joint venture of S & H and AEG. In 1941, it reverted to AEG. See Feldenkirchen 1988: 33. Nippon Denki 1962: 125–6. Oki Denki 1981: 129; Chokki 1990. Mohr to CVU, August 20, 1930; August 25, 1930, SAA 20/La 219. Nippon Denki 1962: 127–8. Electricity was a developing technology. . . . Electrical technology looked easy to follow, since in the early period its level in Europe and the United States was low. But, since progress in Europe and the United States was very rapid, Japanese companies had the special task of chasing a target that continued to develop. Looking at the process of the establishment of electrical technology, it is necessary to consider these special characteristics (Uchida 1989: 152). Furukawa Toranosuke to C. F. v. Siemens, May 12, 1931; Mohr to Reyss, May 13, 1931, SAA 4/Lf 802 Carl Friedrich von Siemens. Nippon Denki 1962: 36. Yoshimura to Reyss, July 9, 1931; Wada to Reyss, July 10, 1931, SAA 20/La 220. Yoshimura to Reyss, August 4, 1931, SAA 20/La 220. Ibid. Ibid. The former indicated the definition of domestication of manufacturing in relation to the military parts associated with the Communications Ministry, which benefited from the government’s policy for the encouragement of domestic manufacturing. The latter drew up lists of goods to be manufactured domestically, in order to actually realize the domestic manufacturing encouragement policy. It procured items on these lists on a preferential basis, and also changed the regulations governing purchases of items on these lists to allow in future the convenience of designated bidding, switching from competitive bidding. The former, the Provisions for the Encouragement of Domestic Manufacturing, were not at that time released publicly, but according to these provisions, the definition of domestically manufactured goods can be summarized as follows: 1) Relation to the capital structure of the manufacturing company: Domestically manufactured goods are goods manufactured by a company of which over 51 percent of total shares are owned by Japanese

Notes

257

nationals. If this provision is fulfilled, companies will all be treated equally whether they are 51 percent or 100 percent Japanese-owned. Even if, as per the former clause, 51 percent or more of the shares are owned by Japanese nationals, if all the goods are imported from abroad and simply assembled in Japan, these will not be recognized as domestically manufactured goods. However, this does not apply to imported materials. 2) Relation to foreign patents: Goods that are manufactured based on foreign patents are not domestically manufactured goods. Nor are goods that are manufactured based on patents imported from abroad. Nor are goods that are manufactured based on payment of license fees for foreign patents (Nippon Denki 1962: 150). 129. Zederbohm to Reyss, October 23, 1930, SAA 20/La 219. 130. Wada 1955: 1. Fuji Denki 1972: 45 and Fuji Tsushinki 1964: 15–16 also contain these recollections. 131. Kajii 1972: 75–6. 132. The viewpoint of the Communications Ministry is on record as follows: Domestic manufacturing of the Siemens & Halske type was very behind, and it was not progressing. By chance, in Osaka where they already had partially installed the Siemens & Halske type, the Minami office, which had a very large number of lines, was aiming to automate. If it were to switch completely to the S & H type, the office would have to pay several hundred thousand yen in foreign currency, while if it used the domestically made Strowger type, the expense would be only about half. Moreover, this was just the time when the international balance of payments was most serious and the emphasis was on economizing foreign payments. Since the Siemens & Halske type had only been installed in Osaka to a limited extent, there were those who advocated moving these to a small city with a limited expansion rate and switching completely to the domestically made Strowger type within Osaka, avoiding foreign purchases and considering future expansion. The members of the financial and engineering departments met frequently under then-Vice Minister Ohashi’s leadership, and for a while they held in their hands the fate of the Siemens & Halske type; but a financial evaluation that considered the expense of removing the already installed Siemens & Halske types concluded that a considerable expenditure could be anticipated for removal, resulting in higher prices. As a result, the decision was made in favor of the Siemens type, and in the end, the entire city of Osaka went with the Siemens & Halske type (Nippon Denshin Denwa Kosha 1953: 43). Nippon Denshin Denwa Kosha 1960 confirms this as follows: From the point of view of system standardization, this was really unfortunate. Subsequently, the people involved reminisced that they failed by trying to save a very small amount of money. As a result, the dominance of the Siemens type in Osaka could no longer be removed, and Tokyo on the one hand and Osaka on the other, with their background of rivalry, deepened the division of the systems between Eastern and Western Japan (Ibid., p. 58). This is an appraisal based on the standpoint of system unification. 133. 134. 135. 136.

Nakagawa to Reyss, October 5, 1931, SAA 20/La 220. Furukawa Electric to Siemens, November 13, 1931, SAA 20/La 220. Fusi [Fuji Electric] to Reyss, December 2, 1931, SAA 20/La 220. Ibid.

258

Notes

137. Fusi [Fuji Electric] to Ogino, December 2, 1931, SAA 20/La 220. 138. Ibid. 139. Niederschrift, Besprechung mit Ogino und Shimada, December 4, 1931, SAA 20/La 220. 140. Niederschrift über die Besprechung mit Ogino und Shimada, December 7, 1931, SAA 20/La 220. 141. Nakagawa to Reyss, January 13, 1932, SAA 20/La 220. 142. Mohr, Wada to SSW, March 10, 1932, SAA 20/La 220. One interesting point is that Fuji Electric’s letters to Siemens, almost all of which up to this point had been in English, are from now on in German. 143. Nihon Keizai Shinbunsha 1980: 280. 144. Wada 1955: 1. Another recollection is as follows: However, Siemens was still full of misgivings about the manufacturing skills of the Japanese, and Siemens was worried that its own reputation would be hurt if the Japanese were unable to make satisfactory products, so it would not easily consent to local manufacturing. Since Furukawa executive Ogino Gentaro was at that time in the middle of a trip to Europe, he was particularly entrusted with the negotiations with Siemens, and in the end he gained the consent of that company to allow local manufacturing (Fuji Denki 1992: 45). Wada’s reminiscences on pp. 277–9 and 298–9 of Nihon Keizai Shinbunsha 1980 are less specific. 145. Fuji Tsushinki 1964: 14. The number of employees in the telephone plant grew rapidly from 11 at the end of 1930 to 150 at the end of 1933, and 200 in the fall of 1934 (Nippon Denshin Denwa Kosha 1953: 386). 146. Fuji Tsushinki 1964: 18. 147. Wada’s reminiscences (Fuji Denki 1972: 45). Wada had earlier recalled (1955: 1): The first to buy the products of the Kawasaki factory was the Tsurumi office. Since that time, the manufacturing experience was still shallow and many of the parts were imported; the cost was therefore relatively high. Nevertheless, since we were telling the Communications Ministry that the goods were domestically manufactured, we had to charge a low price, and as a result we suffered big losses. I remember to this day how President Nakagawa of the parent company, Furukawa Electric, scolded us, saying ‘You said that automatic telephones would be profitable, and you got the company into this; now what are these losses?’ 148. 149. 150. 151. 152.

Fuji Tsushinki 1964: 19. Ibid., p. 19. Fuji Denki 1972: 39–41; Furukawa Kogyo Kabushiki Kaisha 1976: 547. Hasegawa 1983: 296, 298. Toa Electric Machinery Manufacturing was founded in 1918, and from 1923 it came under the umbrella of the Nissan group. Then in 1934, it was merged with Kokusan Kogyo Kabushiki Kaisha (National Manufacturing Industry, Ltd). In 1937, when Kokusan Kogyo was merged with Hitachi Manufacturing Works, it became the Totsuka plant of Hitachi. At first it made dials, telephones, and manual switchboards. Then, in 1933, its first small-scale automatic switchboards were purchased by the Communications Ministry. The technology was an exact copy of the product of Automatic Electric Inc. (AEI). Kabushiki Kaisha Hitachi Seisakusho 1949: 247–8; and Nippon Denshin Denwa Kosha 1953: 376.

Notes

259

153. Notiz, January 27, 1934, SAA 11/Li 1 v. Buol. 154. With regard to Shida’s strategy, see Yoshida 1990: 102–4. 155. Notiz, January 27, 1934, SAA 11/Li 1 v. Buol. However, Siemens’ interpretation that Oki Electric had fallen under NEC’s umbrella was wrong. There was an attempt at an acquisition, but it came to nothing. Yoshida 108–10. 156. Notiz, March 6, 1934, SAA 11/Li 1 v. Buol. 157. Richtlinien, May 7, 1934, SAA 11/Li 1 v. Buol. 158. Wada, May 16, 1934, SAA 11/ Lg 498 Jessen. In the spring of 1934, I left together with Director Zederbohm for Germany. The purpose was to negotiate with Siemens about the local manufacture of light electric products, the agreement with NEC, and other issues, and since no executive of our company had visited Germany since its foundation, I also reported on its business results. On that occasion, I took some parts for telephones and telephone equipment made in our Kawasaki factory to show Siemens, and they were extremely surprised at how well we were able to make these parts in only a year. As a result, they seemed to place new trust in Japanese skills (Wada’s reminiscences in Fuji Denki 1972: 45). 159. 160. 161. 162. 163. 164. 165. 166. 167. 168. 169. 170. 171.

172. 173. 174. 175. 176. 177. 178. 179. 180. 181. 182. 183.

Nihon Keizai Shinbunsha 1980: 281–2. Niederschrift, May 11, 1934, SAA 11/Li 1 v. Buol. ‘Heads of agreement,’ May 24, 1934, SAA 11/Li 1 v. Buol. Diercks to Fuji Denki, January 30, 1935, SAA 11/Li 1 v. Buol. Nippon Denki 1962: 175. In addition, that company was also exporting to Korea, Taiwan, Manchuria, China, and Mongolia. Nippon Denshin Denwa Kosha 1953: 18– 19. Nihon Keizai Shinbunsha 1980: 282. Notiz, January 27, 1934, SAA 11/Li 1 v. Buol. Yamaguchi to Diercks, May 2, 1934, SAA 11/Li 1 v. Buol. Yamaguchi, Memorandum, no date, SAA 11/Li 1 v. Buol. Fuji Tsushinki 1964: 24–5. Lüschen, Diercks to Yoshimura, April 8, 1935, SAA 11/Li 1 v. Buol. Jessen to Berrenberg, May 4, 1935, SAA 11/Lg 498 Jessen. Momotani to Schmolke, June 21, 1935, SAA 11/Lg 498 Jessen. Momotani gave a detailed report of this exchange of telegrams to Siemens’ headquarters. We may conjecture that Momotani played the role of antenna for Siemens in relation to its Japanese partners. Ibid. Ibid. Fuji Tsushinki 1964: 25–30, 180. Ibid., p. 23. Wada’s reminiscences in Fuji Denki 1972: 45. Yoshimura to SH and SSW, July 1, 1935, SAA 11/Lg 498 Jessen. Jessen to Diercks, June 25, 1935; July 5, 1935, SAA 11/Lg 498 Jessen. Tokyo Shibaura Denki Kabushiki Kaisha 1963: 37. Fuji Tsushinki 1964: 33–4. Ibid., pp. 52–3. Ibid., pp. 49–50. For more detail, see Fuji Tsushinki 1964: 37–8, 61–2; and 1976: 21.

260

Notes

184. Fuji Tsushinki 1964: 53–4. In the case of Fuji Electric, military goods accounted for 70 percent of sales in the first half of 1944. Fuji Denki 1972: 65. 185. Fuji Tsushinki 1964: 32. Omi Hanzo (later Fujitsu managing director) also reminisces as follows: Mr Leichsenring came from Siemens, and as head of the transmission department, he had some contact with me as head of the conveyance department. Acting in a spirit of pure manufacturing nationalism, we did not use any of his data. Often we would say with childish high-spiritedness, ‘We’re not monkeys, so we won’t imitate’ (Fuji Tsushinki 1964: 39). 186. 187. 188. 189.

190. 191. 192. 193. 194. 195.

Fuji Denki Koshokai 1981: 92. Fuji Denki 1972: 126–8; Fuji Tsushinki 1964: 120–2; and Furukawa Kogyo 1976: 44. Uchida 1989: 151. Nippon Denki 1962: 11, 50, 158–9, 189–90. Mason (1990: 188) has analyzed this, terming it the ‘Oyatoi Gaikokujin Model’ (foreign employee model). However, Mason does not clearly point out the continuing technological dependence of NEC in spite of Western Electric’s gradual withdrawal. Tokyo Shibaura Denki Kabushiki Kaisha 1963: 32. Yoshimura to Siemens, April 25, 1938, SAA 68/Li 151. Interview with former Fuji Electric employee, Ueda Kiyomatsu, November 28, 1989. Unknown to Wada, Zederbohm (the most likely author is Reyss), June 16, 1934, SAA 11/Lg 498 Jessen. Interview with Ueda. Incidentally, Fujiwara, in his pioneering study on foreign electric machinery companies in Japan during the inter-war period from the viewpoint of corporate control (such as the ratio of equity ownership, technological control, control of raw materials, limits of distribution channels, etc.), concluded as follows: If one looks only at the capital ratio, in only the former two companies [NEC and Tokyo Electric] was management control clearly in the hands of foreigners. In the latter three companies [Shibaura Engineering, Fuji Electric, and Mitsubishi Electric] one cannot say from this perspective that the foreign owner had control. However, the issue is that although in these cases the capital was controlled by Japanese companies, the structure of foreign control was maintained through the technological monopoly of the foreign companies. The cost of patents and technology guidance fees could be an obstacle to investment in R & D; the agreements on product line forced Japanese companies to specialize in traditional and labor-intensive products or to enter into the position of an import service business; they were excluded from developed countries’ markets by distribution agreements; they became pathologically dependent on foreign technology; etc. Thus, the technological dependence of companies receiving foreign investment was maintained (Fujiwara 1973: 40). However, this conclusion is not easy to support. In the case of Fuji Electric, the patent fee was in fact zero, the list of items to be produced was expanded, and the limits to the distribution network were loosened. Fujiwara himself (1973: 36–9) pointed out these changes in the body of his work. It is unfortunate that he did not use the actual results

Notes

261

of his study. In short, it is important to see changes dynamically. On the other hand, a view opposite to that of Fujiwara is as follows: In general, the ultimate purpose of direct investment is to gain profits through participating in corporations; in the case of direct investment in Japan, there was another purpose, namely for foreign investors to establish bases in Japanese companies and to solidify their footing in the Far Eastern market. This is why in Japan they did not exploit the companies that they invested in; they tried instead to make those companies grow (Gaimusho, Tokubetsu Shiryobu (ed.) 1948: 64–5). However, without doubt, this view is simplistic, ignoring or underestimating the conflicts between foreign parent companies and their subsidiaries or their partner corporations in Japan. It is necessary to observe dynamically both sides of the ties between the companies: contacts, negotiations, conflicts, compromises, and so on. In other words, it is necessary to analyze the data from the viewpoint of the history of international business relations. 10 1.

CONCLUDING REMARKS

See Udagawa 1987a: 21. Foreign-affiliated companies not only had a great influence on the development of the industries to which they were related, but also performed the role of nurturing related industries and of raising up the technological level of those industries (Udagawa 1987b: 29–30). Foreign-affiliated companies nurtured and supplied personnel, raised the technological level of parts and materials suppliers, and promoted the establishment of sales channels. 2. Gaimusho, Tokubetsu Shiryobu (ed.) 1948: 141. 3. Yamamura 1978: 532. The quote has been retranslated from the Japanese. 4. Ibid., p. 534.

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Index

Abe Yoshinosuke 134 AEG (Allgemeine Elektricitäts Gesellschaft) 165, 195, 251 Ahrens, H., & Co. Nachf.: Haber-Bosch process 119, 125, 125–6; I.G. process 133–4, 135–6, 141 aircraft 25–6 alizarin blue 44 ambition 106–7, 108–9, 220–2 ammonia see Haber-Bosch process Anglo–Japanese Alliance 12, 224 anti-aircraft gun 55–65, 219 Anti-Comintern Pact 14, 66 anti-rust paint 154, 155 Ariga Teru 136 Asawa Saburo 109 Automatic Electric Inc. (AEI) 167 automatic switchboards 167; forced localization of manufacturing 195–207; sales results 179–83; see also Fuji Electric, Siemens Aviation Industry Economic Group 56, 62 Aziende Colori Nazionali Affini 45 BASF (Badische Anilin- und Soda-Fabrik) 110, 112, 130 Bergius hydrogenation process 130–1 Bergwerksgesellschaft Hibernia (HIAG) 69–70, 139–40 Bosch, Carl 107, 250 Bosch, Hermann 133, 134 Bosch, Robert 52, 165, 251 Brennecke, Walter 120, 122, 123–4 Brinkmann, Rudolf 71 Britain 156–7 Bunten, Wilhelm 178 Bureau for Economic Consolidation 68, 69 business strategy see strategy

Bütefisch, Heinrich 78–80, 81, 141, 142, 143 ‘Buy Japanese’ movement 185, 199 calculation, economic 14–18 Centrale des Matières Colorantes (CMC) 38, 40 chemical industry 20, 22–3, 25; see also dyestuffs, Haber-Bosch process, Shimadzu process, synthetic oil China 30, 175; Germany and 15–17, 56; Mitsui Indigo Agreement 45–6; see also Sino–Japanese War China Six-Party Dyestuff Agreement 45 chlorate explosives 149–50, 152–3 Chongjin plant 94–6, 100–7 Ciba 38–9 coal hydrogenation see hydrogenation Commerce and Navigation Treaty 2, 13, 37, 75, 157 Communications Ministry 174, 180, 197, 206; local manufacturing 198–200, 204–5, 257; telephone system expansion plan 177, 178, 212–13 competition, free 19 conflict: Chongjin plant 100–7; economic between Germany and Japan 13–14; Haber-Bosch process licensing 123–6 construction: conflicts regarding 100–2, 124–5 credit 59–60, 61–2 Dainippon Seito (Greater Japan Sugar) 113–15 Dainippon Tokkyo Hiryo (Greater Japan Patent Fertilizer) 113–15 Degussa (Deutsche Gold- und SilberScheideanstalt vormals Roessler) 153,

280

Index

159, 161, 250; establishment of Ost Lurgi 148, 151, 152; evaluation of Shimadzu process 156; withdrawal from cooperation 157, 158 design rights 24 Deutsche Asiatische Bank 29 direct investment 7, 8, 218, 220, 227; ambition and pride 220–2; German investment in Japan 26–30; Japanese investment in Germany 30; vs licensing 20–1; see also Siemens Doitsu Taikan (Outlook for Germany) handbook 23, 29–30 Domestic Manufacturing Promotion Committee 185 ‘Domestic Production’ movement 19, 185, 190, 198–9 Dornier 26 Dow Chemical 45 Du Pont 43–4, 45, 46 Dutch East Indies 75–6 dyestuffs 35–48, 218–19; agreement between I.G. Farben and Japanese firms 36–7; import license system 35–6; Japan strategy of international cartels 37–41; Mitsui Indigo Agreement 44–7; special market agreements 42–7 economic calculation 14–18 economic conflict 13–14 Economic Cooperation Treaty (1943) 18 economic nationalism 18–19 Electric Power Industry Law 187 electrical machinery 20, 25, 225–6; see also Fuji Electric, Siemens Electroacustic 61 Ema Genzo 118–19, 120, 123, 124, 240–1 ‘Encourage Japanese Manufacturing’ movement 19, 185, 190, 198–9 exports 7, 8, 218–19; ambition and pride 220–2; Siemens’ forced export strategy 166–77; see also dyestuffs, synthetic oil, trade, trading companies Felten & Guilleaume Carlswerk 165–6 First World War 50, 168 Fischer-Tropsch process 132, 146 four-company merger: hopes for 192–4 four-party cartel 39–41 Four-Year Plan 66, 68–9, 71, 82–3, 86 France 37–8, 156–7 Fuel Bureau 132 Fuji Electric (Fuji Denki) 28, 148, 165, 213, 216–17; adjustment of relations

with NEC 207–9; distribution of profits 215; exploring cooperation with Tokyo Electric 209–10; formation of 176–7; formation of Fujitsu 166, 210–12; four-company merger plan 192–4; hopes for merger with Mitsubishi Electric 190–2; localization of manufacturing 183–7, 195–207 (initiation 205–7; negotiations 200–5; plan 198–200); localization of sales 177–9; management crisis 187–9; pricing agreement 190; sales results 180–3; Siemens and Fuji’s telephone equipment business 195–8 Fujitsu 166, 210–12, 217; activities and quest for independence 212–15 Furukawa Toranosuke 198 Furukawa Electric Industry (Furukawa Denki Kogyo) 20, 28, 148, 165, 197, 198; dividend payments 215; Fuji’s management crisis 188–9; joint venture with Siemens 20, 28, 148, 165–6, 169, 171, 172–7, 216, 253 (see also Fuji Electric); local manufacturing 185–6; negotiations in Berlin 1931 200–1, 203 gasification hydrogenation process 135–6 General Electric (GE) 165, 185, 190, 193, 195, 196 German–Japanese Commerce Committee 52 German–Manchurian Friendship Treaty (1938) 17, 66 German–Manchurian Trade Treaty (1936) 15, 16, 17 German–Soviet Non-aggression Pact (1939) 18, 74 German trading companies 49–52 Germany: authorities and high-pressure reaction pipes’ export 68–9, 71, 84–5, 85–6; exports to Japan 22–3; German personnel in Japan 30–1, 101, 120–4; C. Illies and German government 52; influence of Japanese firms in 161; investment in Japan 26–30; Japanese investment in 30; Japanese personnel in Germany 31–2; preparations for war with Soviet Union 77; restrictions on military exports 56, 59–60; technology 4, 11–13; see also Japanese–German business relations Godo Takuo 93, 137; mission 56–9 Göring, Hermann 68, 69, 71 Grabe, Mr 169

Index granular iron see Krupp-Renn process Great Kanto Earthquake 177 growth, economic 18 guarantees 142–3, 144 Haber, Fritz 149–50, 151, 152, 155–6, 161, 250 Haber-Bosch process 110–29, 219; arrival of German personnel 120–2; arrival of plans and machinery 118–20; conflicts regarding start of operations 125–6; difficulties in construction 124–5; diffusion in Japan 111–15; employment of technical staff 116–18; five cases of introduction 113–15; German–Japanese interface 122–4; initiation of operations 126–7; technology absorption by Taki Fertilizer Works 116–27 Hama Jun 139 Hapro Agreement 15 Heinkel 57 HIAG (Bergwerksgesellschaft Hibernia) 69–70, 139–40 Hirose Seiji 103, 106 Hitachi 190, 192–4 Hitler, Adolf 77 holding company plan 192–4 Holliday, L.B., & Co. 40–1 Hoshi Hajime 149 Hoshino Naoki 75 hydogenation 67–9, 131–2, 133–4, 135–6, 243; see also I.G. process synthetic oil I.G. Farben 148; dyestuffs 29, 35–48, 218–19 (Saito-Waibel agreement 13, 36–7, 41, 45; special agreements 42–3, 43–4, 47); Haber-Bosch process 110–29 passim, 219; I.G. process see I.G. process; Japan’s synthetic oil project 76, 85–6, 219 (futility of Krupp’s efforts 72–4; Krupp’sattempt at cooperation 69–71; Oshima’s approach 78–80; proposal to Krupp 80–2); licensing strategy 111–13 (adoption 130–1; development 133–40; internal investigation into poor results 141–4; reasons for failure 144–6) I.G. process 130–47, 219–20; adoption of licensing strategy 130–1; development of licensing strategy 133–40; illusory business talks 146–7; probing

281

unsuccessful results 140–4; reasons for failure to transfer 144–6; synthetic oil industry in Japan 131–3 IGE 214 Iino Koji 159 Illies, C., & Co. 29, 51–2, 54–5; competition with Mitsubishi Shoji for Rheinmetall anti-aircraft gun 55–65, 219 (counterattacks 61–3; enquiries 55–6; weaknesses 56–8) Imperial Chemical Industries (ICI) 39–40, 41, 47 Imperial Fuel Industry (Teikoku Nenryo Kogyo) 66, 132, 143, 145; Oshima’s visit to Germany 76–7; Toa Fuel Industry 136, 245 import license system 35–6 Inabata Jiro 39 independence 212–15 indigo, synthetic 44–7 industrial property rights 24–6, 154–5, 156–7, 226 information: exchange of technical 142, 144; weaknesses 56–8 Interessengemeinschaft (I.G.), Swiss 38, 40 international business relations: history 4–6; three forms of 6–7 international cartels 20; dyestuffs 35–48 (four-party cartel 39–41; Japan strategy of 37–41; Mitsui Indigo Agreement 44–7; three-party cartel 37–9); electrical machinery 194–5; proposed for reaction pipes 70–1 International Hydrogenation Engineering and Chemical (IHEC) 70, 71, 73, 137, 141–2, 145, 147; coordination with I.G. Farben 144; I.G. Farben’s meeting with 140–1; guarantees 144; HIAG 139–40; licensing fees 136, 138, 141–2, 143; South Manchurian Railway 133–4; tightened regulations 79, 81 International Hydrogenation Patent (IHP) 139 International Industrial Property Rights Protection League 24 International Notification and Compensation Agreement (INCA) 194–5 International Telephone and Telegraph (ITT) 195 inter-war period 1–4, 11–18 iron and steel 22, 25; Krupp-Renn process see Krupp-Renn process

282

Index

Italy 57, 66; see also Tripartite Pact Iwasaki Koyata 155 Japan: German investment in 26–30; German personnel in 30–1, 101, 120–4; investment in Germany 30; Japanese personnel in Germany 31–2; as one of first NIEs 18–20 Japan Ammonium Sulphate (Nippon Ryuan) 126 Japan Astraphloxine Agreement 43 Japan–Manchuria Fuel Liquefaction 139–40 Japan Mining 108 Japan Nitrogenous Fertilizer 82, 135 Japan Petrochemical Industry 138 Japan–Prussia Friendship and Trade Treaty (1861) 2 Japan Telegraph and Telephone Public Corporation (Nippon Denshin Denwa Kosha) 214 Japan Variamine Blue Agreement 42 Japanese army 136–7, 147, 245–6 Japanese–German Anti-Comintern Pact 14, 66 Japanese–German business relations 11–32, 218; ambition and pride 220–2; direct investment 26–30; economic conflict 13–14; forms of relations 21–32; inter-war period 1–4, 11–18; licensing 23–6; licensing vs direct investment 20–1; looking to German technology 4, 11–13; movement and stationing of personnel 30–2; political closeness and economic calculation 14–18; strategy choices of German companies 18–21; trade 21–3 Japanese–German Commerce and Navigation Treaty 2, 13, 37, 75, 157 Japanese–German–Italian Tripartite Pact see Tripartite Pact Japanese navy 168–9; synthetic oil 74, 78, 82, 136–7, 145–6, 245–6 Japanese trading companies 52–5 Japanization 213–15 Jessen, Mr 210, 212 Johannsen, Friedrich 89, 91, 93, 94–6, 103–5, 106 Kajii Tsuyoshi 200 Kajiki Sueto 143 Kajiyama Hideo 169, 174, 175, 198 Kani Takao 58, 59 ‘Karinhall Plan’ 71

Kato Takeo 155 Kawasaki Aircraft (Kawasaki Kokuki) 26 Kawasaki Heavy Industries 93, 95, 108 Kawasaki Shipbuilding 93, 96–7, 99–100 Kawasaki Steel 93, 108 Kellogg, M.W., Co. 143 Kerschbaum, Friedrich 153 Keßler, Hermann 172 Kikuchi Kitsushiro 116, 118–19, 122, 127, 240, 242; relationship with German staff 123–4 Kniffler, L., & Co. 51 Köttgen, Carl 175, 187, 192, 255 Krauch, Carl 69, 71, 82–3, 84, 85 Krupp 63; and Japan’s synthetic oil project 67–74, 80–6, 219 (attempts to export 67–74; I.G. Farben’s proposal 80–2; negotiations with German authorities 84–5; Oshima 80, 82–4) Krupp-Renn process 89–109, 219; ‘ambitiousness’ of Japanese 106–7; conflict during construction 100–2; decline in use 107–8; difficulties after start of operations 105–6; and Japanese businesses 89–93; organization and results 99–100; plant-construction process 93–100; technical problems 102–5; technology absorption at Chongjin plant 100–7 Kuji steel works 96–7, 108 Kuroi process 139 Kwantung Army 60, 63, 63–4 Kyoritsu Electric 182, 183 lead-powder production 154–5; see also Shimadzu process Leichsenring, Mr 211 Lemke, Walter 69–70, 72–4, 82, 104 licensing 7, 8, 23–6, 218, 219–20; ambition and pride 220–2; vs direct investment 20–1; I.G. Farben’s strategy 111–13, 130–1, 133–40; see also Haber-Bosch process, I.G. process, Krupp-Renn process, Shimadzu process licensing fees 136, 138, 141–2, 143–4 localization of manufacturing 216–17; forced 195–207; negotiations 183–7, 200–5; plans 168–70, 198–200 localization of sales 177–9 machinery 22–3, 119–20 management: forms of foreign-affiliated

Index companies 27; problems and HaberBosch process 125–6, 128–9; transfer of 221–2 Manchukuo 15, 17, 66 Manchuria 15–16, 17, 30, 63–4 Manchuria Coal Mining 139 Manchuria Fuel Liquefaction Industry 139 Manchuria Incident (1931) 41 manufacturing, localization of see localization of manufacturing Marco Polo Bridge Incident (1937) 55 market division and technology cooperation agreement 167–8, 170–2, 179, 201, 215–16 marketing agreements 112; dyestuffs 42–7; telephone equipment 189–90, 194 Matsunaga Yasuzaemon 192 Matsuoka Kinpei 150 Matsuoka Yosuke 76, 77, 133–4 Meidensha 194 merger: Fuji Electric and 190–4 Merton, Alfred 151, 159 Metallgesellschaft (Metallbank und Metallurgische Gesellschaft) 152, 153, 155–6, 161, 248; establishment of Ost Lurgi 148, 149–51; revision of contract 157–60 military equipment exports 56, 59–60; see also anti-aircraft gun Ministry of Economic Affairs 60, 62, 69, 72, 79 Mitsubishi Coal Liquefaction Industry 134–5 Mitsubishi Electric (Mitsubishi Denki) 188, 189, 190, 192–4; hopes for merger with Fuji Electric 190–2 Mitsubishi Ltd (Mitshubishi Goshi) 155, 161, 248; Ost Lurgi 148, 149–51, 161; revision of contract 157–60 Mitsubishi Mining (Mitsubishi Kogyo) I.G. process 134–5, 137, 145; KruppRenn process 91–3, 94–6, 99–100 (technology absorption at Chongjin plant 100–7) Mitsubishi Rohrbach Aircraft 26 Mitsubishi Shoji 16, 53–5, 78, 158, 159, 160; competition with C. Illies for Rheinmetall anti-aircraft gun 55–65, 219; I.G. process 134–5, 137, 140, 147 Mitsubishi zaibatsu 115, 129 Mitsui Bussan (Mitsui & Co.) 16, 43, 44, 54, 83, 85 Mitsui Indigo Agreement 44–7 Mitsui Mining (Mitsui Kozan) 36, 42,

283

44–7; special agreement with I.G. Farben and international dyestuff cartel 43–4, 47 Mix & Genest 208 Mohr, Bernhard 185–6, 188 Momotani Rokurota 185–6, 186–7 multinational enterprises 5–6 Nacco (National Aniline and Chemical) 43, 45, 46 Nakagawa Suekichi 188, 190, 192, 204, 210 Nakahara Nobuhei 12, 136, 137 Nakajima Kumakichi 175, 193 naphthol dyestuffs 42–3 nationalism, economic 18–19 Natori Wasaku 176, 185–6, 193; Fuji Electric’s management crisis 188, 189; merger plans 191–2; sudden retirement 198 NEC (Nippon Electric) 166–7, 171, 185, 197, 199–200, 207, 217; adjustment of Fuji Electric’s relations with 207–9; Japanization 214; sales results 180–3 Negishi Makoto 154 Niewenhuis, Mr 143 Nihon Senryo Seizo (Japan Dyestuff Manufacturing) 36, 38–9, 44; special agreement with I.G. Farben 42–3 Nippon Denchi (Japan Storage Battery) 154, 155–6 Nippon Kako (Japan Projectile) 93 98–9, 99–100, 108 Nippon Oil 138 Nippon Tar Kogyo (Japan Tar Industries) 113–15, 128–9 Nippon Telephone and Telegraph Company Bill 205 Nippon Yakin Kogyo 108 Nishiyama Yataro 96–7, 108 Nissan Chemical Industries 137–8 Nomonhan 63–4 nonferrous metals 25 North China Project 137 Obenaus, Mr 82–3, 84–5 Ogino Gentaro 200, 202, 203, 204 Ogura Oil (Ogura Sekiyu) 67, 145; I.G. Farben’s licensing strategy 135–7, 140, 142, 143, 144; opposition from the navy 137, 245–6 oil 15–16, 75–6; synthetic see synthetic oil oils and fats 15–16

284

Index

Oki Electric Industry 166, 182, 183, 185, 197, 207 Okochi Masatoshi 99 Okuma Shigenobu 52 Okumura Masao 149, 151, 159 Okura Shoji (Okura Trading) 54, 85, 165 Operation Barbarossa 77 operations: conflicts/problems and 102–6, 125–7 organizational learning 128, 129 organizational structure 4–5, 128, 129 Oshima Hiroshi 58, 66, 74 Oshima Yoshikiyo 76–84, 85, 86; approach to I.G. Farben 78–80; contact with Krupp 80; Krupp’s response 82–4 Ost Lurgi (Ostasiatische Lurgi) 148–61; establishment 149–52; liquidation 160–1; negotiations for revision of contract 157–9; new contract 159–60 output shortfalls 95, 99–100, 126, 127 ownership: foreign-affiliated companies 27 Pacific War 3, 18 patents 24, 154–5, 156–7, 226 permission to export 67–74, 84–5 personnel: continuity in steel industry 108–9; Haber-Bosch process 116–18, 120–4; movement and stationing 30–2, 227–8 Pier, Matthias 70–1, 141 plans: problems and 101–2, 118–19 political closeness 14–18 pricing 81–2; agreements see marketing agreements pride 220–2 Pupin loading coil 196–7, 256 regional general trading companies 51 Remag 101, 102 Renn process see Krupp-Renn process Reyss, Hermann 175, 178, 188, 189, 192 Rheinmetall 55; trading companies and anti-aircraft gun 55–65, 219 Rohrbach 26 Ruhl, Otto 81, 135, 136, 137, 138, 140; analysis of failure of licensing strategy 141–3; compromise licensing plan 143–4 Ruhrchemie 132 Ryoyo Kogyo (Ryoyo Enterprise) 151, 153, 157, 159, 160–1, 250 Saito–Waibel Agreement 13, 36–7, 41, 45 sales: agreements see marketing

agreements; localization 177–9; results for automatic switchboards 179–83 Satsuki Kai (Azalea Society) 194 Sauer, Mr 78 Schlotterer, Gustav 69, 71 Second World War 17, 47, 77, 83, 147 separation of companies, forced 207–15 SH-type automatic switchboard 179–83, 183–5, 202, 205 Shibaura Engineering 166, 190, 191, 192–4, 209 Shida Fumio 207, 208 Shimada Kikutaro 200 Shimadzu Genzo, Jr 154 Shimadzu Tsunesaburo 154 Shimadzu process 25, 148–61, 220; attempt to license 155–7; cancellation of technological cooperation 157–61; establishment of Ost Lurgi 149–52; patents 154–5 Shimadzu Works (Shimadzu Seisakusho) 153–4, 249 Showa Steel Works (Showa Seikosho) 91–3, 93–4, 95, 99–100, 108–9, 139 Siemens, Carl Friedrich von 175 Siemens 165–217, 220; adjustment of relations with Western Electric 207–9; distribution of Fuji Electric’s profits 215; export strategy before First World War 166–8; forced export strategy 166–77; and Fuji Electric’s telephone equipment business 195–8; Fujitsu 210–15; international cartels 194–5; joint venture with Furukawa 20, 28, 148, 165–6, 169, 171, 172–7, 216, 253 (see also Fuji Electric); market division and technology cooperation agreement with Western Electric 167–8, 170–2, 179, 201, 215–16; negotiations over localization of manufacturing 183–7, 200–5; plans for local manufacturing 168–70 Sino–Japanese War 16–17, 55–6, 63 South Manchurian Railway (Minami Manshu Tetsudo) 133–4 Soviet Union 18, 63–4, 85; German preparations for Operation Barbarossa 77 soybeans 15–16 special marketing agreements see marketing agreements steel see iron and steel, Krupp-Renn process

Index strategy 4–5; choices of German companies 18–21 Strowger-type automatic switchboard 179–83, 202 structure, organizational 4–5, 128, 129 sulphur black dye 43–4, 47 Sumitomo Chemical Industries (Sumitomo Kagaku Kogyo) 127, 139, 246 Suzuki Tsunesaburo 192 Switzerland 37–8 Synthetic Fuel Production Law (1937) 66, 132, 145 synthetic indigo 44–7 synthetic oil 67–86, 219; failure to transfer technology 146; I.G. Farben’s proposal to Krupp 80–2 (Krupp’s response 82–4); industry in Japan 131–3; Japan’s project for production of and Krupp’s activities in Japan 67–74; Krupp’s negotiation with German authorities 84–5; Oshima’s visit to Germany 76–7 (approach to I.G. Farben 78–80; contact with Krupp 80); see also I.G. process Taki Fertilizer Works 110, 116–29; introduction of Haber-Bosch process 113–15; technology absorption of Haber-Bosch process 116–27 Taki Kumejiro 127, 128 Tamaru Setsuro 150, 153, 156 teacher–student relationship 2, 220, 222 technical staff 116–18, 119, 122–4, 127–8 technology: Japan looking to German 4, 11–13 technology absorption 110–11; HaberBosch process at Taki Fertilizer Works 116–27; Krupp-Renn process at Chongjin plant 100–7 technology transfer 221–2; licensing and 24–6 telephone equipment 172–3, 195–8; see also automatic switchboards, Fuji Electric, Siemens Temporary Industrial Rationalization Board 192–3 Thies, Wilhelm 186 three-party cartel 37–9 Toa Electric Manufacturing (Toa Denki Seisakusho) 182, 183, 207, 258 Toa Fuel Industry (Toa Nenryo Kogyo) 136–7 Togo Shigenori 13

285

Tokyo Electric (Tokyo Denki)209–10, 211, 212, 213, 214, 217 Tokyo Gas 138–9, 246 Tonegawa Morisaburo 174 Topp, Willy 179 Toyo Chisso Kumiai (Oriental Nitrogen Association) 111 trade 11, 13–14, 221–2; overview 21–3; see also exports trademark rights 24 trading companies 49–65; battle over Rheinmetall anti-aircraft gun 55–65, 219; C. Illies & Co. and German trading companies in Japan 49–52; Mitsubishi Shoji and Japanese trading companies in Germany 52–5 transportation machinery 25 Tripartite Pact 3, 14, 17–18, 66, 86, 235; economic and technical aspects 74–6 Tsuge, Mr 133 Tudor 154, 155 tungsten technology 149–50, 152–3 Ube Nitrogen 138 Union of Ammonium Sulphate Manufacturers 126 United States (USA) 17, 57, 146–7, 156–7, 166–7 USL Corporation 156–7 utility model rights 24 Völkel, Mr 103, 104, 105 Voss, Mr 101 Wada Tsunesuke 176, 193, 198, 211; adjustment of Fuji Electric’s relations with NEC 208–9; local manufacturing 200, 204 Waibel, Hermann 37, 41, 46 Werner, Mr 156 Western Electric 169, 175, 181; NEC 166–7, 214; Siemens’ adjustment of relations with 207–9; and Siemens’ joint venture with Furukawa 172–3; Siemens’ market division and technology cooperation agreement with 167–8, 170–2, 179, 201, 215–16 Westinghouse Electric 190, 191, 193 Wolff, Otto 17 Yahagi Kogyo (Yahagi Industry) 113–15 Yamaguchi Kisaburo209 Yamashita Motomi 104 Yamazaki Shoichi 96

286

Index

Yasukawa Electric (Yasukawa Denki) 190, 194 Yawata Steel Works 2 Yokoyama Buichi 116–17, 124 Yoshimura Manjiro 173–4, 175;

Fujitsu 210, 211, 213; local manufacturing 198–200, 201–2, 217 Yoshino Shinji 192 zaibatsu 115, 129 Zederbohm, Willy 200, 210