The rationale for the Texas Instruments joint venture differed from previous partnerships. Texas Instruments Japan Co., Ltd. was founded in May 1968, not to strengthen Sony's operational base, but to open Japan to foreign investment and solve a problem that had plagued all Japanese electronics manufacturers.
In January 1964, TI had requested permission from Japan's MITI to establish a wholly owned company in Japan to manufacture integrated circuits (ICs). In the 1960s, ICs were considered the next big step since the emergence of the transistor. Originally, IC technology was developed for U.S. military and space applications. By the mid-1960s, however, electronics companies had obtained the technology and expected these components to allow huge advances in the quality and miniaturization of products such as televisions, household appliances and radios. At the time, Japanese companies had fallen far behind their U.S. counterparts in IC technology R&D.
Japanese electronics companies felt threatened by the prospect of TI, the largest manufacturer of ICs in the world, setting up production facilities in Japan. With Japanese makers still in the IC research phase, they strongly opposed MITI giving TI permission to set up in Japan. "If TI is given free rein to manufacture in Japan, we're finished," was the general sentiment. MITI, which had supported and protected the growth and development of Japan's electronics and car industries, was opposed to conceding leadership in such key industries to a foreign company.
However, Japan was being pressured to liberalize restrictions on foreign investment. Looking at the situation from an international perspective, a skillful and well-thought response was needed. Would Japan always remain a closed, protectionist country or would it embrace an international perspective and accept foreign investment? Two years passed before MITI finally gave TI an official response. But finally, in September 1966, TI was granted special permission to establish operations in Japan under the following conditions:
* The business had to be a joint venture with a Japanese company with both parties contributing an equal amount of initial capital;
* TI had to make their IC patents available to Japanese manufacturers; and
* Manufacturing quantities had to be controlled for an initial three-year period.
But, TI would not change its policies to meet MITI's conditions. TI wanted to set up a wholly owned Japanese subsidiary and was prepared to make the patented information available only if MITI ceded to its requests. TI held significant patents for crucial IC technology and if TI did not make patented information available, Japanese manufacturers would not be able to export their own IC components for some time. Thus, the IC industry in Japan would remain at a standstill. But, with the passing of time, the R&D capacity of Japanese companies would increase, and the attractiveness of TI's proposed venture into the Japanese market would diminish.
TI and Japanese manufacturers dug in, ready to defend their positions. Then president Ibuka, and vice president Morita realized that if the situation deteriorated any further, all parties would lose. Dragging out TI's bid to enter the Japanese market and the associated IC technology patent problem was not good for the Japanese electronics industry, for TI, or for U.S.-Japan relations. While acknowledging MITI's position, Ibuka and Morita decided that Sony should take action to resolve the problem as a representative of Japan's electronics industry.
TI CEO Patrick Haggarty and Morita were on good terms. Morita approached him directly with an offer to establish a joint venture company to facilitate the initial entry of TI into the Japanese market. The capital contribution of both parties would have to be equal. There was no way for Sony to get around this issue. However, as Sony had the capacity to meet all its IC needs through in-house production, it would essentially leave the responsibility of managing the joint venture to TI. In addition, Sony pledged to approach MITI to gain permission to transfer its total stock in the joint venture to TI after three years. Thus in the long run, the joint venture company would effectively be a wholly owned TI subsidiary. There was also the general expectation that the Japanese IC industry would improve significantly in the three-year period.
In May 1968, five years after TI had made its initial application to MITI, Texas Instruments Japan Co., Ltd. (TI Japan), was formed as a 50-50 joint venture between Sony and TI. Haggarty was appointed chairman and Ibuka president. At the same time, TI signed contracts with Japanese companies agreeing to allow them to use TI patented IC technology. The agreement came on the heels of Sony's announcement that it would establish a records division through a joint venture with CBS Inc. The announcement of TI Japan caused a stir in the business community, because it represented the first step toward a full-fledged liberalization of foreign investment in Japan.
Free from the shackles of the TI patent problem, Japan's electronics industry moved full steam ahead toward the "IC age." And, three years after TI Japan was established, Sony transferred all stock in the joint venture to TI in 1971, making TI Japan the first wholly owned foreign company within Japan's IC industry.