Invest Japan Symposium

Keynote

• Mr. Stanley Roth, Vice President, International Government Relations, Boeing International

Mr. Roth gave an in depth look at Boeing’s long history in Japan and shared the key lessons the company has learned as it got to where it is today. Boeing’s business is roughly split between the commercial aircraft business and the military and space business, but Mr. Roth focused his remarks on the commercial aircraft business. He broke the company’s history in Japan into four phases—sales, industrial cooperation, program participant, and risk-sharing partner—and illustrated key insights gained from each.

Sales
Beginning with Boeing’s first sales to Japan, Mr. Roth took the audience from the company’s modest beginnings to having 86% market share¹ in Japan for commercial airplanes seating 100 or more people. Boeing’s first sales interaction with Japan took place in 1918, when the company only had 300 people, compared to 160,000 today. Japanese representatives visited Boeing in Seattle to look at a biplane but didn’t make a purchase. The first sale did not happen until ten years later.

These beginnings underpinned Mr. Roth’s first lesson from Boeing’s Japan experience, which reappeared throughout his speech: “If you want to do business in Japan, you have to be persistent, and you have to be there for the long term,” he said. Mr. Roth described the years that followed this first sale as “a rather long and dark period in [Boeing’s] commercial relationship in Japan.” But Boeing “saw the future [and] made a decision the Japanese market was important.” It incorporated Boeing International Corporation in 1953. Boeing’s first major sale in Japan did not occur until the end of 1963, reinforcing the lesson, “Be persistent and look for the future.”

The second lesson Mr. Roth gave was “Make a good offer…Expect your Japanese customers to be well-informed and to bargain hard—that’s only fair,” he said. The third lesson: tend your relationships. Boeing made sure to have people who dealt with Japan over extended periods of time, rather than ‘parachuting in and out.’ “It was going to be a major factor in our success over decades of business in Japan,” he departed.

Industrial cooperation
After making its first major sale in Japan, Boeing soon moved to industrial collaboration, working together with the Japanese to merge expertise. Mr. Roth illustrated further lessons learned through the successful collaboration on the 747 aircraft.

The first lesson—a point he thinks is not recognized enough—is that Japanese customers are willing to take risks. At the time, the 747 was a breakthrough development, an aircraft that carried twice as many passengers as any aircraft at the time. “It could have been argued that Japanese customers, at such an early stage of development in the aerospace industry, should run from this,” he said, “and yet they embraced it. So don’t underestimate your Japanese customer.”

Second, companies will often experience a positive, unintended consequence when selling to Japan. In Boeing’s case, it learned key manufacturing practices from its Japan suppliers, particularly lean manufacturing, which is the key principle for the Boeing Company today. So rather than simply a “Boeing sell, Japan buy” model, the relationships quickly moved forward to benefit both sides.

The third lesson from the 747 was the importance of listening to the customer “in a profound sense,” Mr. Roth emphasized, “not just listening in the sense of the relationship but in terms of moderating and changing your product.” While the 747 that holds over 500 passengers is overwhelmingly used on international flights, Boeing listened to the needs of its Japanese customers to develop a special model for short-range, local routes. “Boeing listened to the customer, and we developed it,” said Mr. Roth. “We were able to sell a product based on what we heard; the Japanese industry was able to get work to manufacture that product; and we both were able to develop our technology to contribute to future developments.”

Program Participant
During the third phase for Boeing in Japan, the company moved to what it calls “program participants,” which sits at a level above the normal supplier relationship. Boeing considered this move as crossing a major threshold. In 1973, while working to develop the 767, Boeing and the Civil Transportation Development Corporation—a government-backed consortium of heavy manufacturers—signed a Memorandum of Understanding to study the development of a new commercial plane and consider how Japan could help build it. By 1975, Japan was involved in designing the 767, sending 63 engineers to Seattle, a number which grew to 133 engineers by 1979. “This was of enormous significance,” said Mr. Roth. “It was the first time that Boeing let customers into its design facilities, and it shows you the importance that Boeing attached to its relationship with Japan and with Japanese industries.” Today, every Boeing aircraft has a Japanese component to it.

Risk-sharing partner
In the 1990s, Boeing’s relationship with Japan moved forward once again when developing the 777. ANA and JAL made up 50% of a four-airline group helping to design the aircraft. Japan also increased its share in the value of the aircraft to 20%, a rather significant total. But what made Boeing’s Japanese partners ‘risk-sharing’ was that they were now paying their own development costs for the work they were doing on the plane. “That is truly partnership,” said Mr. Roth. “They had a joint stake in the success of the aircraft and helped Boeing mitigate the cost of a new airplane.” This risk-sharing partnership continues today with the 787, the Dreamliner—Boeing’s newest aircraft—and the Dreamlifter, a modified a 747.

Boeing currently has more than 85 companies in Japan participating as partners. Boeing directly supports 13,000 jobs in Japan, which represent an astonishing 21% of aerospace-related employment in Japan. Boeing also contributes to the development of the MRJ, a 70 to 90-seat regional jet being developed by MHI.

Looking back, Mr. Roth points to the stability of the U.S.-Japan alliance as having provided an environment conducive to such success and in which Boeing and other companies can pursue a long-term strategy. “Now, I’m not suggesting that there are no issues,” he conceded. “…[But] we’re going to be able to continue doing business in each other’s countries. That isn’t true every place in the world, and it’s a very important factor.”

In addition to the stability of doing business in Japan, Mr. Roth noted the importance of having an educated and motivated workforce, something for which Japan has long been well known. Also, Japan is no longer a place where people feel it is difficult to operate. “In fact, the days are long gone when it was a disability to be an American company trying to operate in Japan,” said Mr. Roth. “There is no problem now operating as an American company in Japan, and it is encouraged by the government.”

Other factors Mr. Roth listed as strengths to doing business in Japan were:

1. Stable and sufficient investment in R&D
2. Prudent infrastructure investment
3. A regulatory regime that is strong on issues such as certification, safety and security—but not overly burdensome
4. The removal of barriers that impede efficiency, raise costs, and discourage innovation

“So as far as the Boeing Company is concerned,” Mr. Roth said in closing, “Japan has been, remains, and will be an excellent place to do business.” He believes that applying lessons from Boeing’s more than 50 years of experience in Japan—“the need for patience, the need for a long term vision, the recognition that a relationship has to be mutually beneficial, and that a relationship based on partnership can lead to results that not even envisioned when you begin the relationship—greatly increases the prospects for success of a company investing in Japan.

¹Based on 2007 statistics.


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Note: The above summary is an adaptation of the speaker’s presentation. Contents and quotes may not be entirely accurate.