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Shopping spree: Foreign firms expand in the U.S.

Foreign electronics companies are rapidly acquiring US firms or expanding their own here. Japanand the United Kingdom are particularly active. Leading the top 40 foreign firms in the US as measured by US sales for the most current fiscal year are NV Philips GL, $5.3 million; Matsushita Electric Corp, $4.3 million; Northern Telecom Inc, $3.103 million; Sony Corp, $3.081 million; and Toshiba Corp, $2.88 million. The strength of many currencies against the dollar encourages US investment. Some firms, such as NV Philips and most Japanese companies, prefer to manufacture where they sell. Japan's increasing US presence is also part of a strategy to build strength in research and in industrial electronics , a tactic which may help Japan maintain its competitive edge over Pacific Basin countries . More than 12 US electronics firms or divisions have been acquired by foreigners since 1987. US mergers by foreign firms are sharply up in first half 1988.

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Shopping spree: Foreign firms expand in the U.S.

Foreign electronics companies are rapidly expanding their shares of the U.S. market. (On the following pages, ELECTRONIC BUSINESS ranks the top foreign companies in the United States.) Overseas firms are not only selling more here, they are manufacturing more as well. Indeed, the strength of many currencies against the depressed dollar is prompting foreign companies to acquire -- or expand their own -- businesses here at a bargain price.

"Japan and the United Kingdom have been particularly active, but they are not the only countries involved," according to Alex Ladias, research manager for the Chicago-based merger consulting firm of W.T. Grimm & Co. Ladias figures that 151 U.S. mergers and acquisitions were announced by foreign companies in the first half of 1988, sharply higher than the 99 such transaction in the year-earlier period. More than a dozen U.S. electronics firms, or parts of them, have been acquired by overseas buyers since early 1987, Ladias estimates. France's Thomson-CSF, of course, acquired the consumer products division of General Electronic Co. And Siemens AG bought a 60% stake in Telecom Plus International, a communications concern based in Long Island City, N.Y.

For the Japanese, in particular, U.S. expansion results partly from their growing fears of protectionism and partly from their move into more sophisticated industrial electronics. "If they sell a product locally, they want to make it locally," says Bill Ebsworth, portfolio manager of the Fidelity Pacific Basin Fund. Foreign firms aren't just buying existing businesses, they're shopping for new sites and plants as well.

Hitachi America Ltd., Tarrytown, N.Y., makes a wide range of products in the United States, including computers and telecommunications equipment. It even exports disk drives from its Norman, Okla., facility to Europe. "One of our strategies is to increase our mnaufacturing base in the U.S.," says Harry W. McGrath Jr., deputy general manager for corporate administration.

Canon Inc. generates a third of its worldwide sales in North America, and its U.S. manufacturing output contributed to a U.S. sales gain of better than 90% in 1987. Demand runs especially high for Canon's chip-making equipment, laser printers and facsimile machines.

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Matsushita Electric Corp. of America, Secaucus, N.J., operates eight plants in the U.S. and expects to add more, according to a company spokesman. "We are still on a roll and looking to other operations," he says. Matsushita's presence in the United States dates back to 1974, when it acquired the consumer products division of Motorola Inc. and its Quasar brand name. In the past five years, it has added components, car speakers, cellular mobile telephones, pagers and VCRs. Workers at a new Atlanta facility are turning out electronic point-of-sales system. Factories under construction in Troy and Columbus, Ohio, will manufacture CRTs and (in partnership with Eastman Kodak Co.) consumer batteries.

The steep drop of the dollar from a high of 260 Yen to 120 Yen put expensive price tags on Japanese-made products sold in the United States and served as a strong incentive to expand U.S. manufacturing. Yet, plans by some Japanese electronics concerns were laid years before the big currency move began in 1985. "If the dollar had not dropped, maybe we would now have only four or five U.S. plants," says the Matsushita spokesman. "The yen situation only served to accelerate the process."

Japan doesn't have a monopoly on the make-it-where-you-sell-it strategy. In fact, this approach is strongly espoused by N.V. Philips GL, the Dutch electronics giant with the largest presence here. Sales in the United States account for 20% to 30% of the company's total revenue. And Philips intends to increase its stake to the 40% to 50% range, concentrating on components, consumer electronics and information technology. "Philips has a policy of raising its local manufacturing resources to the level of its local sales," says Albert Ruttner, a vice president in Philips' New York City office.

Japan is moving especially fast, however. Its push away from a complete focus on mass-produced consumer electronics into more sophisticated high-end industrial products requires a production presence in the countries where they are sold. "Once you introduce new technology, you bring in a new set of problems and you have to be close to your customers," agrees Roger A. Schwantes, vice president for product technological development in the Nashville, Tenn., office, of Canada's Northern Telecom Inc.

Clearly, the Japanese move into the U.S. industrial electronics market will entail technological development, and the stakes go beyond the enhanced profitability that is attainable with higher end products. Robert E. Johnson, technology analyst specializing in Japanese companies for Swiss Bank Corp., points out that the gradual shift will help Japan maintain its competitive edge over South Korea and the other fast-growing, newly industrialized countries (NICs) of the Pacific Basin.

The emerging competition apparently is beginning to figure in the long-term strategies of the big Japanese electronics outfits. "Their focus for the future is on industrial electronics. They realize this is where the growth is, and where there is more value added" says Johnson. And Laura Luckyn-Malone, portfolio manager of the Japan Fund, New York City, agrees: "This is the trend, and there is no going back."

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Japanese firms realize that sustaining the trend will require creativity, the portfolio manager says. "There is a definite shift in japan toward becoming a major technological innovator," says Luckyn-Malone, and some of the R&D will be transplanted to the United States. The basic research for Hitachi America now is done in Japan, but there are plans to phase it into the United States over the next five years.

The absence of a major Japanese research presence in the United States is blamed by some analysts for some big mistakes made by the country's electronics industry, in particular, missing the boat on the personal computer. "If you weren't here, you couldn't participate in the development of the PC," adds Johnson.

Selective threat

Japan's manufacturing and research beachhead in the United States is being built on a very small base -- the annual revenue of IBM alone is more than three times the aggregate U.S. sales of the seven Japanese electronics companies with the largest stake here. And analysts see the competitive threat posed to U.S. companies as being highly selective. The U.S. electronics industry is expected to retain dominance in nonmemory chips, software, high-end and low-end hardware and chemical process chip-making equipment, according to Johnson. Yet, he sees the Japanese looming large in the optical technologies -- laser printers, optical storage devices and optical readers.

While the Japanese electronics companies reserve their worst fears of protectionism for the United States, they also are looking to 1992, when the restructuring of the European economic community into a single marketplace is scheduled to take place. So a manufacturing buildup in Europe is also likely, according to Fidelity's Ebsworth. "The Japanese want to get in before the gate is closed."

As if to underscore this incipient globalization, Matsushita in October announced a realignment of its corporate structure along global lines. The main Osaka office will direct operations in Japan as one of four management headquarters; the Secaucus office will oversee North American, South American and Latin American operations; Europe and Africa will be the under the jurisdiction of London headquarters; and there will be an Asia-Middle East headquarters at a site not yet selected. "The aim is to make each region as self-sustaining as possible," says a spokesman.

The long-range globalization of the Japanese electronics industry will vary in scope and speed from company to company and will not necessarily be easy, according to Johnson. So far, he says, Japanese executives haven't excelled at working with people of other cultures. Explains Johnson: "They are used to a mono-cultural environment."





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