If hot money is what the entrepreneur finds in America these days, then patient money is what flows from across the Pacific.
Allen Michel, an associate professor of finance at Boston University and consultant to start-up companies, found patience incarnate in the form of Hitachi Ltd. It was working on a 50-year plan.
"At first I thought this was nuts. How can you possibly know what the world is going to look like in 50 years? But after I talked to one of their planners for half an hour I was convinced that I liked the idea." Michel says that Hitachi's approach is hypothetical: "They say, 'If our competitors develop a certain product, what do we do in response, and where does that put us 10 years down the road?' They look at the interaction and the reaction. They assess the competitive landscape."
Michel notes that in 1988 Hitachi had a return on equity of 7.1% and return on assets of 2.5%. This compares with IBM's 14.9% and 8.1%, respectively. He says that few U.S. investors would tolerate such low returns in exchange for the prospect of longer-term reward. In Japan, such modest numbers are the norm. This takes investor pressure off the large Japanese companies and allows them to make venturesome technology investments and thereby assure themselves a future.
In the United States there are opposite incentives. While large corporations have traditionally made minority investments in innovative start-up companies, they are often seen as sidelights to the business, not integral to its future. Says Reid Dennis: "These ventures are relegated too far down the line. They are run by somebody who's scared to death of making a mistake because he knows it could threaten his corporate career. On the other hand, if he does well he won't really be rewarded, because what he does is not part of the corporate charter."
Many large U.S. corporations these days are run by financial managers, not technologists. Moreover, they feel the heat from Wall Street to produce quarterly increases in profit -- and not make investments that take years to pay off. One notable exception, though, is U.S. pharmaceutical companies, which have not only made considerable investments in R&D but have taken minority stakes in small biotech companies.
Nonetheless, the persistent pressure for short-term financial return threatens a deadly downward spiral. Money has moved away from technology investments. But technology investments such as Rasna are integral to manufacturing. Notes Allen Michel: "We in America now pride ourselves on being a superservice economy. That's all well and good, but the value of the dollar depends primarily on the imports and exports of manufactured goods. Services don't transport well; they don't help the trade balance. I don't see us over the next five years turning into a banana republic, but our trade balance will be more and more negative. We will end up with a dollar of lower and lower value."
It is that threat of decline -- in the currency, in the manufacturing base, in the U.S. standard of living -- that worries Tom Longo, CEO of Performance Semiconductor Corp., in Sunnyvale, Calif. In the past two years Asian investors have approached his company four different times. In each case they offered Longo large-scale top-notch manufacturing capability in Asia in return for access to his technology. In each case Longo steadfastly refused.
"What we need in this country is a good, stable, manufacturing-engineering environment," Longo asserts. He believes that technology deals with the Japanese and other Asian countries inevitably lead to the loss of U.S. manufacturing capability, the sapping of the economy's sinew. He believes it is delusionary for Americans to think they can constantly stay ahead of the Japanese in technology simply through innovation, while allowing manufacturing to be done increasingly overseas. Eventually the Japanese pick up on and adapt our innovations to their manufacturing muscle. Says Longo: "We are in an economic war, and the standard of living of people in this country is at stake. I've got to tell you, there's so little awareness of the problem."
Tom Longo is a heavy-set, slightly sad-eyed man, an old technology war horse. He is a former board member of and chip supplier to Cray Research Inc. (In fact, Seymour Cray was an early investor in Longo's company.) Sitting in his Spartan boardroom, the man looks tired. His building looks tired. It is probably not more than 15 years old, but fraying a bit at the edges. It seems functional in contrast to the gleaming new edifices you see around Silicon Valley with their polished stone, the fancy modern art on the walls, the offshore money in their coffers. Longo's building looks as though every last cent has been poured into production.
Longo insists there is historical precedent for his fears. He cites Fujitsu Ltd.'s purchase of 46% of Amdahl Corp., starting in 1972, enabling Fujitsu to establish a beachhead in this country and to challenge IBM in Japan. He cites the high-performance CMOS SRAM chip market, which his company, Integrated Device Technology, and Cypress Semiconductor pioneered. When large U.S. chip makers couldn't crack this market on their own, they simply marketed chips churned out in Japan at a low price. Says Longo: "There's not a lot of patriotism in our
