THE 1996 NEWCOMEN PRIZE ESSAY

From to Automobiles: Mechanical and OrganizationalInnovation in the Toyoda Enterprises,1895-1933 William Mass 1 CenterJ½rIndustrial Competitiveness UniversityofMassachusetts, Lowell

Andrew Robertson HarvardUniversity The storyof SakichiToyoda (1867-1930), the greatindustrial entre- preneurand nationalhero, is taughtto everyJapanese school child. Foreign touristsare told he wasthe Japanese Thomas Edison. As recentlyas 1985,the patentoffice listed Sakichi Toyoda as one of theten most important inventors in Japanesehistory. The textilemachinery company that he foundedeventually gavebirth to theToyota Motor Corporation.Before the Japanese stock market bubble burst, the Motor Corporationcommitted 150 billion yen (roughly$150 million) for the recentlycompleted Toyota Industrial Museum, a remarkablywell-done pa:an to a visionof socialprogress as technological progress.What is lackingis a senseof the criticaland essentialrole of social organization,without which the determinantsand consequencesof tech~ nologicaldevelopment will be misunderstood.This paperexplores both the organizationaland the technologicalaspects of earlyToyoda entrepreneurial historyfor insightsinto the foundationsof Toyota'spostwar performance and potentialimplications for economicdevelopment more generally.

• The authorswould like to thank Qiwen Lu and Damian Kieran for their excellent researchassistance. In addition,we wouldlike to thankour colleaguesTakeshi Abe, Eisuke Daito, KazuoWada, and particularly HideaM Miyajima for helpfuldiscussions and for their assistancein securingJapanese-language materials. All of them are exempt from any responsibilityfor our errorsof omissionand commission.The internationalcollaboration thathas supported this research has been funded by theSocial Science Research Council and the National Science Foundation. Some of the research was conducted while William Mass wasa HarvardNewcomen Fellow, and partsof thispaper were presentedto the Harvard BusinessHistory Seminar in a paperco-authored with HideakiMiyajima. An earlierversion of thispaper was presented at the"Symposium on IndustrialDevelopment and International Competition"at the Suntoryand Toyota International Centres for Economicsand Related Disciplines,London School of Economicsand Political Science, January 4-5, 1996.Finally, we want our readers to be aware that in this draft we have followed Western convention in placingJapanese surnames last in thetext, but first in listingbibliographic references. BUSINESSAND ECONOMIC HISTORY, VolumeTwenty-five, no. 2, Winter1996. Copyright¸1996 by theBusiness History Conference. ISSN 0849-6825. 2 / WILLIAM MASS & ANDREW ROBERTSON

In The TechnologicalTrans•vmation ofJapan: From the Seventeenth to the T•ven•y-FirstCentury, Tessa Morns- cited the surprising claim of a leading interwarJapanese technologist, the director of thepioneering RIKEN Institute MasatoshiOkochi that "Japaneseresearchers were skilledand original inventors,but that 'sweakness lay in an inabilityto commercialize radicallynew ideas"[pp. 116-7].Okochi's concern was that Japanesefirms wouldmore readilychoose to refineimported technologies where a market wasalready developed, rather than to bearthe greateruncertainty, associated risk,and heavy developmental costs of takinga moreradical from laboratorybench to full-scaleproduction. Morris-Suzuki points to the exceptionthat proves the rule, by discussing"the classic example of Japanese innovation":the Toyoda Works established by SakichiToyoda in 1906, and his son Kiichiro,who, drawingon his universitytraining, put in place systematicand costlylarge-scale research and extensiveprototype and mill testingto refinehis father's inventions. In a recentpaper on "The LearningProcess and the Market:The JapaneseCapital Goods Sectorin the Early TwentiethCentury," Tetsuro Nakaokautilized the conceptof appropriatetechnology to describethe possibilitiesearly in the industrializationprocess for indigenouslydeveloped technologicalleaps. For instance,domestic capital goods producers can serve nichecapital goods markets that supplymachinery to local manufacturers producingtraditional products. These sectors are poorly served by expensive and (for theixpurposes) inappropriately designed and specifiedcapital goods producedin developedeconomies. The indigenousinnovations reinforce and acceleratedevelopment, simultaneously altering previously existing conditions and openingnew opportunitiesfor "quantumleaps in technology"for indigenouscapital goods producers. Nakaokanotesl "One typicalexample of a manufacturerwho made this leapsuccessfully is the Toyoda Loom Works" [Nakaoka, 1994, p. 13].Nakaoka citesthree "quantum leaps" initiated by Sakichiin narrowloom, ixonbroad loom, and automaticloom invention,the latterrefined by Kiichixo.Given the ongoingchanges in economicconditions that accompanysuccessful devel- opment,Nakaoka stressed the needfor recurringor continuoustechnological leapsto sustainthe developmentprocess. Each successivetechnological leap requkedupgraded and more expensive equipment and know-how. Nakaoka identified insufficientcapital resourcesas the most general impedimentand barrierto sustaineddevelopment. Deciding where and how best to deployfinancial resources aimed at "quantumleaps" in technology requkesdeep knowledgeof the adequacyof the platformfrom which one attemptsto leap,the resourcesneeded to helpbridge the gap,and a strategy for theix effective mobilization. Thispaper describes how the Toyoda enterprises achieved international competitivenessin machinery production. It elaborateson and supple- mentsthe assessmentsof Morns-Suzuki and Nakaoka by addressingquestions about the relation between Sakichi and Kiichixo's mechanical and INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 3 the technologyreadily available from foreignmachinery suppliers; the extent and characterof indigenousJapanese innovations in textiletechnology; the relationshipof strategicchoices and innovationsin both technologyand organization;and the riseof Japaneseindustrial leadership as reflectedin the negotiationsover technologytransfer and a proposedmerger between Platt Bros.and two Toyodaenterprises. Collaborative research reported elsewhere addressesrelated questionsabout the role of industrialorganization and nationalinstitutions in alteringthe strategicoptions available for Japanese textileand textile machinery enterprises [Lazonick and Mass, 1984, 1995; Mass andLazonick, 1990; Mass and Miyajima, 1993]. The insightsof Morris-Suzukiand Nakaokahighlight the unevenness anddiscontinuity of organizationaldevelopment and technological achievment in the processof economicdevelopment. The mostimportant and funda- mentalfeature of Japan'sinterwar growth was the character of andrelationship betweendevelopment in both 1) exportsectors, primarily light industries and especiallycotton textiles, and 2) importsubstitution in heavy industries. 'As a casestudy, this paper strives to buildan understanding of the uneven evolution of organizationsand the "leaps"toward international technological compet- itivenessin cottontextile machinery, the key to long-termcotton textile export success,as part of a continuousand cumulativedevelopmental process. We aimto presentan integratedview of elementsof continuityand discontinuity in the dynamicsof Japanesetechnology transfer and developmentand in particularto illuminatethe following phenomena: ß Finance and Markets - The critical access to finance and markets providedby Toyoda'ssustained relationship with the leadinggeneral tradingcompany Mitsui Bussan, and with individual Mitsui managers, was periodicallystrained as entrepreneurial initiatives required an independent developmentpath. ß Long-Term Relationsto Key Technologist$and Technicians- Therewas a remarkable,and generally unknown (at leastin the West), rivalrybetween the first and secondenterprises established by Sakichi Toyoda(Toyoda Loom Works and the Toyoda Automatic Loom Works), wherein he sustainedrelationships of mutual supportwith key technologistsfrom the company he formerlymanaged. ß ProductDevelopment and - Toyodaplayed a leading role in pioneeringthe introductionof the Americansystem of inter- changeableparts into Japanese manufacturing, essential to thecommercial success of mechanical innovations. ß Inventionand OrganizedIndustrial Research - Organizedindustrial researchplayed an earlyand leading role at Toyoda(and we reassessthe characterand relativeimportance of the accomplishmentsof Kh'chixo relativeto hisfather Sakichi). The centraltechnical innovations, embodied in the Toyoda automaticloom, resultedin successfulpioneering commercializationof automatic machinery in competitionwith both importedtechnology and indigenousrivals because they were 4 / WILLIAM MASS & ANDREW ROBERTSON

appropriatelydesigned to suitJapanese textile and machining capabilities, and they integrateddesign with the developmentof superiorToyoda manufacturingcapabilities. ß SocialOrganization and Individual EnterpriseDevelopment - The breadthand depth of theJapanese efforts to developindigenous textile technologyprompted widespread competition and simultaneously promoted the developmentof humanand technical resources that rivals sought to mobili7.efor theirown purposes.At the sametime Toyoda enterprises' strategyand structure led to theirrelative domination of theirrivals. ß TechnologyTransfer from Japanto Britain - We describethe nature and sourcesof tensionbetween Platt Bros. and the ToyodaLoom Works that reflectedthe factorsundermining Platt Bros.' efforts to manufacture andsell automatic weaving technology developed and licensed from Toyoda. ß The Rise of New Industrial Leaders - Finally,the unexpectedand ultimatelyfailed irfifiafives by MitsuiBussan to mergePlatt Bros. with the ToyodaLoom Worksand the ToyodaAutomatic Loom Worksreflected the changingrelationships and their perception among all four partiesas theJapanese industrial faTns attained intemafional competitiveness. ß Technology Transfer acrossIndustries - The deep and long-lived rootsof Toyoda'scorporate culture supported its successin transferring existingcapabilities into and buildingnew capabilitiesfor the emerging automobileindustry, even in the faceof promisingreturns to continued investmentin areasof currentstrength.

An Introductionto the Early History of Toyoda Textile Enterprises

In 1885,Sakichi Toyoda participated in an eveningstudy group where he leamedof the newlyenacted Patent Law andwas said to haveset his goal on inventionas an avenueto contributeto nationaldevelopment. Having grownup in a traditionaltextile manufacturing region, Sakichi began his efforts at developingsuperior hand in 1887. Sakichiattended the Third NationalIndustrial Exhibition in Tokyo in 1890 and viskedthe machinery pavilionevery day for two weeks.During the followingyear he patentedhis firstwooden hand loom invention. Sakichi's technical advance involved linking the flyingshuttle to the movementof the reedwhen beating down the weft. This firstinvention allowed a productivityincrease of 50 percent compared with other indigenouslooms in use.But the woodenhand loom was not a commercialsuccess; at aboutthe sametime a flying-shuttleattachment, called a "battan," was introduced from France which could be attached at much lower cost than a Toyodahand loom and offeredcomparable efficiency [Kobayashi,1995, p. 16]. Sakichibuilt four or five of his patentedlooms in a smallweaving factorythat he establishedin the Tokyoarea. His endeavorcoincided with a periodof slacktrade, however, and Sakichihad returnedto hisvillage by the end of 1893. As a meansto generatethe revenuenecessary to finance INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 5 continuedloom experimentation, Sakichi invented a -reelingmachine, a devicefor windingyarn. His feelerproduced constant lengths of yarntwice as efficientlyas conventional devices. He relocatedthe weaving and outlet,Toyoda Shoten, to Nagoyaand opened the Ito RetailStore as a sales outletfor the feelerin 1895.Sakichi's second wife and his youngerbrother Heikichimanaged the storeand feeler sales [Toyoda, 1967, p. 28; hereafter whenonly page numbers are given in brackets,the source is Toyoda, 1967]. Sakichiinvented his f•rst successfulnarrow wooden in 1896and garnered much attention. Along with a reelingmachine customer,Tohachi Ishikawa, Sakichiestablished the Otokawa Weaving Company as a partnership.Sakichi's capital contributionconsisted of 60Toyoda wooden power looms. By 1898a weavercould operate two or three Toyodasteam-powered looms instead of a singleconventional loom. Produc- tivityin the modernizedmill increasedfour-fold, cloth quality improved, and costsfell by over50 percent.In orderto advancehis loom experimentation, Sakichialso establishedan independentpilot plant in Nagoya running 36 powerlooms as a basisfor gainingmanufacturing experience [p. 32]. In 1899Kamenosuke Fugino, the MitsuiBussan main branch manager for the Divisionof CottonYarn andCloth, inspected the operatingToyoda powerlooms and evaluated the prospectsfor theirmass production. Mitsui negotiatedan exclusive ten-year contract with Sakichi for producingand selling powerlooms. The Igeta Trading Companywas set up asthe salesagent; its top managerscame from the Nagoyabranch of MitsuiBussan, and Sakichi Toyodabecame the chiefengineer responsible for improvingthe powerloom [pp. 34-40]. This f•rstToyoda power loom foundinitial salessuccess with small manufacturersweaving narrow cloth for such export marketsas Korea, Manchuria,and . Toyoda's looms were easier to maintainand much less expensivethan those of the primaryforeign competitors [p. 47; Toyota,1988, p. 28]: Table _1:Prices of Narrow Power Looms, 1899 LoomManufacturer LoomPrice (in yen) Hartmann, German 872 Diedrichs,French 389 Toyoda 93 The most importantachievement of Sakichi'scontinued development effortswas a patentedlet-off devicethat maintainedthe warp at a constant tensionas it wasbeing fed off the warpbeam. In addition,and for the f•rst time, he turned his attentionto the developmentof a loom that would automaticallyreplenish the weft yarn when the yarn on a bobbin was exhausted.Again facing partners concerned about business solvency during cyclicaldownturns, Sakichi resigned from the Igeta Trading Company, disappointedby thelack of financialsupport for hiscontinued loom develop- ment. Sakichireturned to the Toyoda Shotenand renamedit Toyoda 6 / WILLIAM MASS & ANDREW ROBERTSON

Trading Company(Toyoda Shokai) which absorbed the formerIto Trading Company.He openedan independentcloth mill running138 powerlooms. His wife and his youngerbrother Sasuke managed the ToyodaTrading Companyand the mill, so that Sakichicould once again turn to his loom experiments[p. 40; Toyota 1988, pp. 28-29]. Sakichinext inventedan automaticshuttle-changing device that was attachedto narrowpower looms in 1903.Although the initialeffort was not successful,Mitsui Bussan was interested in financingthe establishmentof the Nagoya Weaving Company, with 150 looms equippedwith Sakichi's automaticattachments for furtherexperimentation. Lacking the capacityfor loommanufacturing, Sakichi contracted with KimotoIron Works,a firm with experiencein manufacturingtextile parts [Suzuki, 1994, p. 155]. KanegafuchiCotton Spinning Company (a forerunnerof Kanebo,Ltd., one of the three dominantintegrated spinning and weavingfro-ns) was interestedin developingSakichi's automatic loom for the manufactureof broadclothfor export.Although still at an earlystage of loom development, Sakichiagreed to allowthe companyto utilizehis patenteddevices because Kanegafuchipromised to licenseand manufacture Sakichi's loom if it proved successful.Kanegafuchi re-equipped its powerlooms with automaticshutde- changingmechanisms designed by Sakichi.The underlyingbusiness relation- ship was probablywith Mitsui Bussan,which would normallyhave been responsiblefor marketingand sellingthe automaticlooms. However, Mitsui was restrictedin its public actionsbecause of its role as the exclusive representativeof PlattBros. in Japan.(The pressuresleading to changein the Mitsui-Plattrelationship will be discussedin a latersection.) Kanegafuchiset up a mill experimentto comparethe performanceof 50 ToyodaTrading Company looms with 44 PlattBros. power looms, ten U.S. Dra.per bobbin-changingautomatic looms, and six Kip Bakerlooms (English loomswith warp-stopmotions). After a one-yeartrial, all the automaticlooms provedto be unsatisfactoryin operation,whereas the PlattBros. power looms were a success.Sakichi and the ToyodaTrading Company suffered financial lossesin providingmaterial support for this experiment.Sakichi drew two lessonsfrom this experience: Fisst, he becamefully cognizant of the extentof foreigncompetition he confrontedas he viedto introducean automaticloom into the Japanesemarket. Second, from then on, Sakichisupervised testing undermill conditionswhen developing all hismechanical innovations [pp. 41- 43;Toyota, 1988, pp. 29-30; Suzuki, 1994, p. 155]. In reviewingthe experienceof producingcloth with Toyoda'snarrow automaticlooms, the headof MitsuiBussan's Nagoya branch office Okano Teiji recountedthe problemsresulting from the poor qualityof loom manufacturingand the complexityof the loom'smechanisms: "Because the techniquesused in thismachine's manufacture are not advanced,it doesnot operateas it should...(I)tis not a simplemachine, it givesthe workers many problems.Moreover, it requiresa longtime to gainthe skill necessary to useit" [Suzuki,1994: p. 156]. INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933 / 7

Recognizingthe lengthydevelopment period necessary to constructa competitiveautomatic loom, Sakichiturned his attentionto raisingthe investmentfunds required for continuedautomatic loom experimentation. He renewedhis focuson the development,manufacture, and sale of the power loom.By 1905he hadinvented a higherperformance iron andwood narrow loom,the Model 38 powerloom (named for the38th year of theMeiji period). In additionto its greaterdurability, at 85 yen the iron 38 loomwas twice as expensiveas the earlierall-wood frame model. A weavercould operate six or sevenModel 38 loomscompared to onlytwo or threeof the earliermodels [Suzuki,1994, p. 157]. The followingyear two newloom models were marketed: the Model 39 powerloom, used for weavingcoarse yarn, and a ModelL, "simplified"light loom (kei-ban)for narrow,thin-weave cotton and jute fabrics.With the assis- tanceof MitsuiBussan's Osaka branch manager Kamenosuke Fugino, Sakichi secureda loan of 130,000yen from MitsuiBussan to financeexpansion. In 1906in an areawithin Nagoya, Sakichi established the ShimazaldFactory, consistingof both a weaving-machinefactory with a productioncapacity of 150 powerlooms per month,and a pilot cloth factory.The salesrecord summarized below confirms the looms' commercial success as the Shimazaki Factorywas operating near capacity [47-48; Toyota, 1988, p. 28]. Table 2: SalesSummary 1905-March, 1909 Loom Model Sales 38 947 39 2,307 L (kei-ban) 4,201 Concernedabout sustainingToyoda Trading Company's strong financial foundationinto the future, Sakichi began recruiting technically able employees. In 1903 he hired two engineeringuniversity graduates (Kogakshi), two graduatesfrom a post-secondarytechnical program (Kotokogyo), andseven or eighttechnical high school graduates [49]. Sakichi's recruitment of suchhighly educated employees was very exceptionalamong small proprietorships. The successof Toyoda'spower loom was evident as earlyas 1906, whenFugino visited Sakichi and his production facility and recommended that Toyodaconvert to a joint-stockcompany. Sakichi, reportedly resistant at first to sharingcontrol, but awareof the importanceof his relationshipto his creditors,agreed to incorporationto securelarge-scale œmancing and cooper- ated in establishingthe Toyoda Loom Works (Toyoda-shikiShokki KabushikiKaisha). The presidentof the ToyodaLoom Works was Fusazo Taneguchi,who was also the president of thegiant spinning firm the Osaka SpinningCompany. Sakichi was the operatingmanager of theToyoda Loom Works.Seishu Iwashita, an importantarranger in the businessworld, was amongthe other top managers,and additionalconsultants included the renownedTakeo Yamanobe (most closely linked with the OsakaSpinning 8 / WILLIAM MASS & ANDREW ROBERTSON

Company)and Fugmoof MitsuiBussan. The ToyodaTrading Company ceasedoperation [pp. 50-51]. The capitalinvestments in the ToyodaLoom Workswere madeby fmancialleaders in Tokyo,Osaka, and Nagoya [lzumi, 1980, p. 18]. Though Sakichiand Hachirojiro Mitsui, the president of MitsuiBussan, were the largest shareholderswith 5 percenteach, there were 143 additionalshareholders. Sakichi'smanagerial control was considerably diluted [Yamazaki, 1987, p. 47]. Toyodasold more power looms than any of its domesticrivals, and the ToyodaLoom Works soon became dominant in thenarrow-cloth power loom marketsegment, servicing small and medium-sized cloth mills selling to the domesticmarket. Its leadingposition emerged with its pioneeringimprove- mentsin manufacturingmethods, and the Toyoda Loom Works quickly turned to the challengeof broadloom productionand the directchallenge of the dominantforeign loom suppliers. Sakichiturned to the task of developinga wide loom suitedfor integratedmills producing broad cloth for exportmarkets. He developedthe H-model,an all-ironwide powerloom in 1908.Sakichi realized the H-model loom had to be made of metal to be able to withstand the increased vibration resultingfrom thegreater loom width. All previousattempts at manufacturing a workablewide power loom had failed,mainly because Japanese machining capabilitieswere inadequatefor producingsufficiently accurate component parts[p. 52].

The Introductionof the AmericanSystem and the Originsof Advanced Manufacturing in Japan

At the first generalmeeting of the ToyodaLoom Works in 1907, presidentTaniguchi explained: It is most regrettablethat at the presenttime we still do not have sufficientequipment to completelymanufacture this Ioom...The iron framenarrow looms installed at NagoyaCloth were provided byToyoda but were manufactured at the Osaka Kimoto Iron Works asour ShimazakiFactory is incomplete.The poorresults stem from a failure in the manufacture of the loom. As a result of these failures and accidents,the Toyoda Loom and its associatedpatented equipmentreached a stagein whichit is unwanted.Not onlyNagoya Cloth Companybut at othercompanies using Toyoda's iron frame loom,the results are uniformly bad. The problemsat Kimoto Iron Workswere not uncommonamong manufacturersof iron powerlooms in othercountries as well asin machine manufacturingelsewhere in Japan.The KimotoIron Workswas not engaged in themanufacture of interchangeableparts. Almost no two machinesused in the manufacturingprocess were alike. In large-scaleoperations looms inevitablybroke down. Without interchangeability, each broken part required a newpiece to be speciallymade [Suzuki, 1994, p. 161]. INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933 / 9

Sakichi'ssearch for solutionsand improvements led him to hireCharles A. Francis,an Americanteacher of mechanicalengineering at the Tokyo HigherTechnical School who hadalso been employed as an engineerfor the Pratt and Whitney Company.From 1905 to 1907, Francishad provided guidanceat a Japaneseleading machine company, Igekai Ironworks, where he "trained workers in the basic techniquesof machinemanufacture," including"the use of indicatorsand gauges, the cutting of highprecision andscrews, and the adjustment of the main [lathe] spindle... [Hie introduced to the companybatch production of standardmodels. He taughtengineers about...thedesign of jigsand fixtures,and the layoutof equipmenton the productionline," and advisedmanagers on essential,high-quality machine toolsto considerpurchasing [Nakaoka, pp. 25-26, 1994]. However, the Igekai Ironworkslacked the resourcesto implementthe full planfor reorganization andwithin a halfa yearFrancis was dismissed [Suzuki, 1994, p. 162]. In confrontingthe difficulties with the manufacture of Toyodalooms at the Kimoto Iron Works foundryin particular,Francis redesigned ', developedstandardized specifications, thoroughly standardized the gauges, and drewup an overallplan for the factory.When the managementat Toyoda Loom Works provedreluctant to pay Francisthe full salarySakichi had promised,Sakichi had them deduct the requiredamount (half of Francis'pay) fromhis own salaryas chief engineer and executive director. Beforeaddressing manufacturing methods at the KirnotoIronworks, Francisfirst designed and directedthe constructionof a machinetool manu- facturingplant that produced lathes and other tools required in productionin 1907. Other than a singletool installedby the IkegaiIronworks, all the machineryinstalled in the factorywas the most modern iron machinery from England,Germany, and the UnitedStates. With thisequipment, the factory madethe approximately300 gaugesrequired for loomproduction. With its own tool factory,Toyoda could establish a systemof standardsand begin manufacturinginterchangeable parts. Workers were trainedin accordwith a newdivision of labor,ending the craftorganization of manufacturingwhere skilled metal workers made, owned, and used their own tools. The commitmentto establishingnew technological capabilities was reflected in the decisionto forgopaying out dividendsto shareholders[p. 61; Suzuki,1994, pp. 162-63]. The ToyodaLoom Works soon developed a seriesof newiron-frame modelsfor both narrowlooms (the K modelin 1908and the moresuccessful L modelin 1909)and broad looms (model H in 1908).These Toyoda iron- framelooms were mass produced at thefactory that Francis designed, the first productionsystem employing modern engineering technology in Japan [Toyowa,1967, pp. 8-11]. Two newfacilities were soon established. Because the pilotweaving plantat Shimazakihad been converted to a warehouse,Sakichi sought to establisha new experimental factory. He builtanother pilot weaving factory, theToyoda Kikui WeavingFactory, as a shopindependent of theToyoda 10 / WILLIAM MASS & ANDREW ROBERTSON

LoomWorks. Sakichi's brother, Sasuke, managed the new clothmill testsite [p. 52]. They initiallysubcontracted their iron work to Kimoto,but a new castingfoundry was establishedin 1908.New and higherquality standards werenecessary to achieveinterchangeability, but theworkers sought to meet quantityoutput goals. Conflicts also emerged among the managers responsible for meetingthe new qualitystandards and for implementingnew work organizationand practices.Despite significant turnover of both managing engineersand workers, the Toyoda Loom Works soon developed a loyalgroup of engineersand workerswho achievedinterchangeability of partsand who differentiatedtheir practicesfrom the rest of the metal-workingindustry. At leastin part becauseof thesechanges, Toyoda was able to doublefactory outputbetween 1908 and 1910 without increasing its workforce [Suzuki, 1994, pp. 166-68]. Start-upproduction problems and difficultiesin operatingToyoda loomsunder mill conditionsprompted Mie Spinning(later merged into Toyo Spinning)to senda technicalmanager to inspectthe operationof Toyoda's pilot factory in October 1909. Three Mie directorshad been major stockholdersfrom the startof the ToyodaLoom Works. Under the direction of an ImperialUniversity-trained engineer, Aisaburo Mano, the Mie textfile engineersand operativeswith experiencein operatingimported looms (both automaticand non-automatic) made improvements in the newmodel Toyoda looms they tested.Toyoda's wide iron power looms were evaluatedin comparisonwith Platt Bros.looms, and the resultsdemonstrated no overall performancedifference between them. In 1913the price of the Toyodabroad loomwas 160 yen,20 percentless than the costof a comparableimported loom.With ordersfor widelooms beginning to arrivefrom integrated spinning companies,a turningpoint had been reachedin the internationalcompet- itivenessof the Toyodalooms [p. 59; Suzuki, 1994, p. 165].Not surprisingly, this earlyperiod of new productand processdevelopment was rife with customercomplaints from both mills purchasingnarrow looms and the growingnumber of mills orderingwide looms [Toyowa,1967, pp. 10~12]. Continueddifficulties in manufacturingexacerbated a developing rift between Sakichiand president Taneguchi. By 1910the highdevelopment costs and the investmentsrequired to scaleup productionshowed promise of reapingsubstantial returns, but much of the periodfrom 1907 leadingup to World War I were yearsof relatively sloweconomic growth. Still, from the secondhalf of 1910,Toyoda Loom Worksbegan paying dividends to its stockholders.The rift emergingbetween Taneguchiand Sakichi deepened, as they disagreed about the appropriate scale of R&D expenditures.Extensive mechanical testing in particularrequired large capitalinvestments. As a result,Sakichi resigned from the companythat was builtupon the commercializationof his inventions and that continued to carry hisname after his departure [p.62; Suzuki, 1994, p. 168].Alffiough Sakichi Toyodaended his formalmanaging relationship with ToyodaLoom in 1910, he in fact continuedas a directoreven after he establisheda rival company. INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 11

More important,Sakichi continued to provideguidance, especially during difficulttimes, to theToyoda Loom managing engineers he hadput in placein the castingfacility. The ToyodaLoom Works continueddevelopment of the iron broad loom and its productioncapacity. Aisaburo Mano of Toyo Spinningand SakichiToyoda providedcrucial guidance - the former in productdevel- opmentand the latterin manufacturing- to ensureToyoda Loom Works' success.Difficulties in coordinatinglarge-scale testing of narrowlooms at NagoyaCloth Company prompted the amalgamation of thetwo companiesin 1913 and the subsequentre-equipping of both facilitieswith wide looms. Assistedby AisaburoMano, now the manufacturingsupervisor of Toyo Spinning,Toyoda Loom Worksdeveloped an English-styleiron wide loom thatwas delivered to Toyoin 1914and 1915. The successof thisN-type of broadloom led to thevirtual cessation of loomimports in Japan by 1920. MitsuiBussan's Fugino repeatedly urged that the Kimoto Ironworks be the nextfactory to introduceinterchangeable parts technology, a goal that it fitfullyattempted and eventually fully achieved under new management. The combinationof Kimoto'songoing financial difficulties, continuing supply problemsconfronting Toyoda Loom, and Toyoda's need for expandedprod- uctioncapacity led Mitsui Bussan to mediatethe acquisitionof Kimotoby the ToyodaLoom Works in 1916.The coregroup connected to SakichiToyoda, includingthe chiefengineer (Fuguro Tsuchiya), the headsof design(Iwataro Okabe)and castingoperations (Chotaro Kubota), and key techniciansat ToyodaLoom were reassigned in similar capacities to theKimoto Iron Works [Suzuki,1949, p. 150;Suzuki, 1994, pp. 166-70;Toyowa, 1967]. 2 A surveyof theinstalled stock of 49,354looms in integratedspinning companiesin 1920identified 63 percentof foreignorigin (two-thirds of which were from Platt Bros.),and out of the 36 percentof loomsthat were domesticallyproduced, over 90 percentof thesewere made by the Toyoda Loom Works [Yanagihara,1979, p. 43]. Table 3 providesevidence of the increasedsuccess of the ToyodaLoom Works after British imports were interruptedby World War I [Yanagihara,1979, pp. 52-53]. International competitivenesswas secured on the basisof loommodels developed and of manufacturingcapabilities attained after Sakichi's official departure, even as the companyrelied on hispatented inventions and his unofficial guidance of key manufacturingpersonnel.

2 Oneimportant consequence of the merger was the departure of KimotoIron Works' chief engineerFuguro Sakamoto, and the launching of hiscareer toward becoming the headof EnshuLoom, the chief rival of ToyodaAutomatic Loom. The historyof EnshuLoom will be brieflydiscussed below. 12 / WILLIAM MASS & ANDREW ROBERTSON

T•ble 3.' ToyodaLoom Works, Loom Sales Total Year Number of Classification Type Developed Construction LoomsSold Narrow Width A 1907 Wood-iron 1,846

Narrow Width K 1908 Iron 213

Narrow Width L 1909 Iron 15,247

Total 70,908 Broad Width G 1907 Wood-iron 180

Broad Width N 1914 Iron 87,114

Broad Width L.T 1932 Iron 901

Total 92,554 Total as of October 1935 163,462

Learning from a Trip Abroad

On May 8, 1910Sakichi along with hischildhood friend and employee Akiji Nishikawa,a practicaltextile mill engineer,departed on a tour of textile districtsin the UnitedStates and . After arrivingin New York, Sakichi wastaken around to textilefacilities surrounding , New Bedford,Fall River,Providence, and Worcester by the New York-basedmachine branch managerof Mitsui Bussan.Sakichi gained confidence from evaluatingthe constructionand operation of Americanlooms in lightof whathe hadlearned from his own factoryexperiments and inventions.In comparison,the Americanlooms' speedof revolutionwas slower,the vibrationlevel was higher,the Draper bobbin-changing mechanism was too complicated,and the high rate of warp breakageresulted in an unsatisfactorynumber of cloth defects[pp. 63-64]. Believingthat the invention of a competitiveautomatic loom had high worldwidevalue, Sakichi had Ishibara, a technicalexpert from Japan, join him. Sakichiand Ishibaraproceeded to England,while Nishikawa and the Mitsui Bussanrepresentative followed through on theU.S. patent application process. Sakichirecorded six U.S. patentsduring the years1909-1914, including inventionsrelated to a warplet-off and a circularloom (1909),an automatic -changingmechanism and a pickercheck (1910), a shuttle-changing loom (1912),and a protectingdevice for shuttlereplenishing (1914) [Annual Reportsof the Commissionerof Patents,1909-1914]. Sakichireportedly felt thathis technical capabilities were superior to the U.S. loommakersas he left New York for Englandin October1910. He INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 13 investigatedspinning and weaving mills in Manchesterand then visited mills on the Continentfor anothermonth before arriving back in Japanin January 1911 [p. 64]. In the widelycirculated and prescientreport of his Britishtravels, Saldchimade a dkectlink betweenthe developmentof the automaticloom and the Japaneseability to captureBritish export markets, a possibility requiringmuch additionalindustrial development and twenty yearsto accomplish(see Mass and Lazonick, 1990). On first seeingManchester, I realized that making our industrythe biggestwould be a fairlyeasy task. In England,the averagenumber of machineseach female operator monitors is only4.5. Moreover, there are no factoriesequipped with automaticlooms. For this reason,I hold great hope for ourindustry. Additionally, the wages of Britishworkers are over four times those of ourworkers. In Japan, the number of our workers on double width looms can operateis graduallyincreasing. For productioncosts of onepound, ouroutput is slightlyhigher than that for Britain. If we manufacture our automaticloom, and the number of machinesour workers operaterises to eight,it is estimatedthat our labor costs per pound, will dropto 23%of Britishcosts. If we cando this,we will gradually overtakethe British, culminating in certainvictory [p. 64]. Readyand eager to renewhis manufacturing and developmentefforts, Saldchithis time avoidedchallenges to his managerialcontrol by securing personalsources of financing.He andhis family relocated to a newtextile mill in Nagoya,which expanded from 100 to 200 loomsbetween 1911 and 1914. Saldchi'sintense efforts in automaticloom developmentled him to focuson minimizingthe extentof yarn breakage.For the first time, he decidedto complementhis researchon improvedloom operationwith large-scale researchinto spinningtechnology. In effortsto minimizereliance on outsidecapital, Sakichi established the Toyoda Automatic Weaving Factory,a privatelyfinanced and closely heldcloth mill thatmanufactured cloth commercially and was simultaneously dedicatedto loomexperimentation. Although there were no dominantoutside financialpartners, the Mitsui Osakabranch manager Fugino Kamenosuke servedon the executiveboard of the company.Sakichi's initial financing was, however,insufficient to realizehis planned goal of equipping200 loomswith automaticshuttle-changing mechanisms. Instead only 100wide power looms werepuxchased, and only eight of thesewere equipped with automatic shuttle- changingmechanisms at the start. Needingthe other 100 loomsin order to maintainthe combined commercialviability of his mill and loom experimentation,Saldchi secured additionalfinancing in a remarkablemanner. In October1912, he renegofiated the termsof the originalcontract transferring his loom patentrights to the ToyodaLoom Works. According to the originalcontract, after a 10percent profitwas paid out asdividends to ToyodaLoom Works' shareholders, one- 14 / WILLIAM MASS & ANDREW ROBERTSON third of the remainingprofits were to be awardedto Sakichi.Willing to forgo his shareof futureearnings, Sakichi agreed to tradethe remainderof his revenueclaims for a lump-sumsettlement of 80,000yen. Sakichi was able to purchasethe additionallooms and thereby to sustainthe momentumon his automaticloom experimentsas well. Sakichi'scommitment to securingthe fundsnecessary to preventthe short-run diminution of hisexperiments proved extraordinarilycostly in thelong run. The magnitudeof thefuture earnings he tradedaway was on a scalehe couldnot possiblyhave foreseen. From 1914to 1919 the ToyodaLoom Worksearned 3 millionyen that wouldhave been turnedover to Sakichias royaltypayments. However, Sakichi did sustainthe viabilityof hismill concern during a periodwhen he did not want to relinquish solecontrol of hisenterprise [pp. 65-67]. As Table 3 shows,the ToyodaLoom Worksdeveloped increasingly populariron widelooms as the WorldWar I economicboom extended their market.The useof widepower looms at smaller-scaleweaving mills began at this time as well. "The war stoppedthe flow of Europeanand American cotton goodsinto , and Japanesespinning and weavingmanufacturers surgedto fill thevacuum" [Hayashi, 1983, p. 13]. Meanwhile,the Toyoda Automatic Weaving Factory was manufacturing cloth,with a cornerof the facilitydedicated to loom experiments.Sakichi foundthat the purchasedyarn was prone to frequentbreakage, problematic for weavingwith an automaticloom. He thereforedecided to integratehis operationsbackward into spinning.To confront(and solve) the fundamental technicalproblems involved in automaticweaving, Sakichi needed to consolidatethe complementarytechnical and organizationlinkages between weavingand spinningoperations. He plannedto begin an experimental spinningdepartment at Nagoyain 1914with only6,000 ring spindles, a much smallerfacility than the averagemill of 50-60,000spindles. At this point he deepenedhis alliancewith Ichizo Kodama,the managerof Mitsui'sNagoya branch,who providedhim assistancein establishingspinning operations [pp.67-68]. Sakichisteadily expanded his integratedfacilities in responseto increasedsales stimulated by the World War I economicboom. Sakichi's daughterAiko marriedKodama's younger brother Risaburo in 1915.At the timeRisaburo was the branch general manager for C. Itoh& Co.,a leadingraw cottontrading company. The Toyoda-Kodamafamily alliance joined textile technologicalcapabilities with marketingexpertise in criticallyessential input and product markets: cotton and cloth. The alliance had dramatic consequenceswithin the Toyodafamily as well. FollowingJapanese custom, Sakichiadopted Risaburo, who thereby became his eldest son, supplanting his biologicalson Kiichiro as his primary heir [10p. 68-9]. One autoindustry historian, Michael Cusumano, has cited the adoption of Risaburoas a primaryreason for Sakichi'senduring commitment to businessexpansion into othermajor growth areas such as automobiles. Sakichi wantedto providea corporatelegacy large enough for both heirsand their INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 15 families.With a sufficientlylarge inheritance, Kiichiro couldreceive his due and familyresentments that mightotherwise thwart effective development of theproductive potential of the alliancecould be avoided[Cusumano, pp. 58-59]. The periodfrom 1912to 1915proved to be a veryproductive period for automaticloom inventionand patenting.Most important,Sakichi made notableadvances in patentingan improvedlet-off device.But researchand experimentationon automaticlooms subsided as the Toyoda textile enterprises provedincreasingly successful. After fouryears of war-timegrowth, the ToyodaAutomatic Weaving Factorywas replaced by Toyoda Cotton Spinningand WeavingCo., Ltd., in 1918.The new companywas establishedwith Sakichias presidentand Risaburoas managing director. The companywas capitalized at 3 millionyen ($1.5million). The newly incorporatedentity had 34,000 ring spindles, 1,000power looms (only eight of whichwere equipped with automatic shuttle- changingmechanisms), and 1,000employees and principal shareholders (see Table4) [pp.V0-1]. Table 4: ToyodaCotton Spinning and Weaving Ownership, 1918 Stockholders % shares SakichiToyoda 48.0 FujinoKamenosuke (Mitsui) 29.4 RisaburoToyoda 10.0 Kodama Yoneko 9.0 KiichiroToyoda .5 Kodama Ichizou 1.0 5 OtherToyoda Relatives 1.2 15 Unrelated Individuals 1.4 Total Shares 100,000 In October 1918 Sakichi traveled with Nishikawa to the Chinese mainlandto investigatethe prospectsfor establishinga new spinningand weavingenterprise there, a projectthat would take three more years to bringto fruition.His expressedreasons for seekingan offshoreproduction site were two-fold:First, Sakichifek that beyondbusiness considerations, he would developproduction abroad when other Japanese spinning companies would not, servingthe nationalinterest by improvingrelations with .Second, Japaneseliving standards and wages were increasing, and Sakichiwas aware thatJapanese wage advantages could not continueindefinitely, so this move wasalso a strategicdecision to producein a lower-wageeconomy [p. 73]. Sakichiset up a personallycontrolled enterprise in China.After 1920 whenChinese tariffs were raised, other Japanesespinning companies began settingup Chinesesubsidiaries. Sakichi responded by expandinghis China operationsand establishedthe Toyoda Spinning& Weaving Works in Shanghai.Capitalized at 5 millionYo (approximately5 million yen) Sakichi was presidentand Akiji Nishikawawas the generalmanager. This mill had60,000 spindlesand 400 looms.Sakichi moved his family to Shanghaito ensurethat 16 / WILLIAM MASS & ANDREW ROBERTSON the venturewould be a success.Nishikawa was askedto managethe textile companyoperations [p. 78]. Joinedby his son,Kiichiro, in 1920and with his financialsituation better than ever, Sakichionce again engagedin loom researchand developmenton the scalefrom which he hadpulled back in 1914.Soon after theShanghai company was established, Sakichi devoted his energy to a circular weavingmachine (an inventiveeffort that wasnever successful, although a prototypeis the centerpiecein the mainlobby of the newlyopened Toyota Museum)and automaticloom invention.Sakichi traveled back and forth betweenShanghai and Nagoyaand oversawthe expansionof the Nagoya experimentalfacility from eight to 32 automaticshuttle changing looms [p. 81].

Kiichiro AssumesHands-on ResearchLeadership

Kh'chirowas a mechanicalengineer trained at the Universityof Tokyo. He workedfor his fatherupon graduating from collegein 1920.Althougtl his thesisdealt with pneumaticpumps, as a memberof the company'stechnical staff he became a specialistin castingtechnology and machine-parts manufacturingfor ToyodaSpinning and Weaving[Cusumano, 1985, p. 58]. Kiichiroplayed the centralrole in the intensifiedresearch activities, which rapidlyachieved many improvements.A new automaticshuttle-changing mechanismwas developed,different from the two centralinventions that Sakichihad patented in 1903and 1909. In 1903 Sakichihad designedan automaticshuttle-change motion in whichthe shuttlechange occurred below the "race"upon which the shuttle traveledfrom one sideof the loomto the other.During the shuttlechange the newshuttle was pushed from below the race,forcing the exhaustedshuttle from theshuttle box at theend of therace. This approach was not successful.Sakichi developedan alternativedesign in 1909in whicha pushingrod horizontally movedthe new shuttle into the shuttle box during the shuttle change. One advantageof the secondapproach was the increased time allowed to executethe shuttlechange. Most shuttle-change mechanisms were more com- plex,requiring the loomto stopoperation, then start up againafter the shuttle exchangeoccurred. Sakichi's simpler motion occurred more slowly than other non-stopshuttle exchangers and operated with precision even at highspeed. The fundamentalinvention developed by Kiichiro and patentedin 1925,is describedas follows: "[A] mechanismlinking the front and rear panels of the shuttlebox, ensuresthat as the new shuttleis pushedinto the shuttle box, both the front and rearpanels move simultaneously; because of this improvementthis motion's shuttle changes became smoother and required less power.In Sakichi's1909 invention, in whichthe frontand back panels of the shuttlebox opened independently at high speeds, delayed opening of theback panelcaused mischanges to occur"[pp. S14-1S]. Justas importantfor successfulcommercialization as the fundamental patentedinventions, essential modifications were made on the other basic loommechanisms such as the warp let-off device and the warp-stop motions. INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 17

Sakichifinally decided to operatehis own automatic loom factory as a pilot phnt, but the 32 experimentallooms were insufficient for effective developmentof managementpractices and worker training. In addition,the warp preparationprocesses required further modificationfor automatic weaving,and Sakichi recognized that successful development would require a separateproduction facility. An automaticloom pilot plant was built in Kariya, Aichi Prefecture,in 1923.With potentialcapacity for 500 automaticlooms, productionwas begun with two hundred looms purchased from the Toyoda LoomWorks and newly equipped with automaticdevices. The loom testing stimuhtedan increasedrate of invention,as measured by an acceleratingrate of patentapplications. From 1903 through 1921 there had been five Toyoda shuttle-changingpatents; nine additional patents in thiskey mechanism were developedbetween 1922 and 1929. Yarn was supplied by theToyoda Spinning & Weavingfactory. Early on, testresults made apparent the limitations of yarn qualityat the parentcompany. It becamecritically necessary to managethe spinningprocess itself, which required the establishmentof a new,dedicated spinningdepartment. The minimumefficient scale for a spinningfactory was 20,000ring spindlescosting 2.5 millionyen, a scaleof operationthat was reachedat Kariyaby 1926[pp. 82-84]: Sakichiasked the Toyoda Loom Works to produce1,000 power looms, on which he would attachhis automaticmechanisms. However, a dispute eruptedover the interpretationof the renegotiatedterms of the 1912 agreementregarding who actuallyretained control over Sakichi's 1909 patent rightsand their application to theshuttle-change mechanisms Sakichi intended to install.In effect,before cooperating with Sakichi's experiments, the Toyoda LoomWorks wanted him formallyto signover to themthe 1909patent rights, a stepSakichi had not takenas part of the 1912settlement. The disagreement andconcern over distribution of potentialreturns from future development of the 1909patents prompted Sakichi to improvethe automatic loom and at the sametime to strengthenhis patentclaims independent of the ToyodaLoom Works.Meanwhile, even as the disputeover patentrights intensified, the ToyodaLoom employees producing the looms to whichthe automatic shuttle- changemechanisms were attachedworked directlyunder Sakichi[Suzuki, 1994,p. 170]. In October1924, Sakichi dramatically gathered the employeesof his companyand asked them to put forthgreater exertions to sustainoperations profitably,while he wouldensure that inventive efforts on theautomatic loom would be intensified.The resultswere immediateand just as dramatic.In Novemberand Decemberthere were ten new patents,including the most importantsingle patent, which would governthe designfor the shuttle- changingsystem as it was developed(Kiichixo's 1925 shuttlebox). The automaticloom designwas sufficientlyperfected to allowpreparations to beginfor massproduction [p. 84]. In thisfirst phase, however, the factory was not adequate. Sakichi leased an ironfactory in Hioki fromhis close friend, Nozue, and asked his long-time 18 / WILLIAM MASS & ANDREW ROBERTSON associateKubota to constructa foundryand castingfacility in the Hioki foundry.During 1925 the automatic loom was redesigned for and successfullytested in a pilot plant of 350 looms.In 1926 Sakichi establishedthe Toyoda Automatic Loom Works in Kariya,next to the experimentalspinning and weavingmill. Soonafter its establishment,fttst Kuboto,then manyother engineersand skilledtechnicians from Toyoda Loom Workstransferred to the new company.This group,long attached to Sakichi,became the nucleus for buildingup productioncapabilities, particularly in casting,as requixed in theproduction of automaticlooms, then of high-draft tingspinrang frames, and eventually of automobiles[Suzuki, 1994, p. 170]. The ToyodaAutomatic Loom Workswas capitalized at 1 millionyen ($460,000)and produced 1,203 automatic looms within the fttst year. Of these, 520looms were placed in the Kariyaexperimental factory; 528 were placed in the mainbranch plant of ToyodaSpinning & Weaving;124 automaticlooms wereplaced in the Kikui Spinning& WeavingCompany (a closelyaffiliated mill establishedin 1918);24 in theToyoda Kikui Weaving Factory; and the last seven,the only earlyloom modelsoperated outside of Toyoda-controlled facilities,went to Kanebo. The needfor and actualtesting of alterationsin the yarnpreparation andspinning processes became a matterof utmostimportance for successful automaticweaving. The Toyodaapproach entailed extensive testing on a large scaleto gainan understandingof the linksbetween materials processing and machinerydesign. Risaburo Toyoda reviewed this historyin 1929in a textile tradejournal [Toyoda, R. 1929,p. 9-10): For example,insufficient attention is paid to preparatoryprocesses. This is the primaryenemy of automation.This is eventhe casein reformedfactories in whichautomatic looms have been successfully adopted.Even there,one frequentlyhears complaints about bad yarn.At ToyodaAutomatic Loom also, from the very beginning, we devotedthe greatestcare to thisproblem, spinning yarn from long fiber cotton. However,because of improvementsin the above mentionedpreparation process, it is possiblenow to useraw cotton hardlydifferent from thatused by the standardpower looms...An importantpoint in researchingthe problemof how to adaptthe loom to Japaneseconditions is that the generalapplication of automaticlooms to textilemanufacture is stillin its infancy...Itis our company'sgreatest desire to producea loom adaptedto the currentstate of our cottoncloth industry,and in the future to accompanythis developmentof more and more advancedcotton weavingtechnology with the productionof these looms. For example,recently we havebeen testing a loomfor extendedperiods of time and gettingresults of 220 picksper minute.Recently in England,whether an American bobbin changer or a shuttlechanger cotfid exceed 160-70 picks per minute provokedstorms of controversy.However, in the operationalexperimentation carried out at ourKariya factory, because a small test sample is no goodfor INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 19

ensuringthe observation of eachand every type of designflaw, two hundredto five hundredand thirtymachines are usedin testing. Initially,we assignedeach operator six looms, but we havegradually increasedthis so that now eachoperator handles over fifty looms, with the expectationthat this number will soonexceed sixty looms per operator. The ToyodaAutomatic Loom Works assumedpride of placeas the centralconcern among the growingnumber of firmsm the Toyodagroup. Kiichixobecame a managingdirector m chargeof loom production.A founds, an iron works,and a woodworkingshop were built, and salesof the ToyodaG-type automatic loom began m 1927.The new automaticloom cost 3.3 times as much as the 200 yen princeof a conventionalpower loom. However,the differencesin staffnagrequirements were dramatic.One expert describedthe typicalcomparison as the differencebetween a weaverwho couldoperate 25 automaticlooms and one operating only two to threepower looms,yielding a commensuratenine- or ten-foldincrease m productivity [Ishii, 1979]. The automatic loom was an immediate successm the marketplace.As Table 5 indicatessales were concentratedwith the integrated spinningmills. TaMe $: Salesof AutomaticLooms, Toyoda Automatic Loom Company (Hioki FactoE•m 1924to mid-1931) Total Domestic Market 13,143

Integrated ..... 8,621 School/Inspec. 24 E•ott 3,825

Korea 444

Platt 1

Sakichi'soptions for raisingthe capitalfor the newcompany included participationby one or a combmarionof the followingorganizations: Mitsui Bussan,Toyoda Loom Works, and the Toyoda spinrang & WeavingCompany. The issuesincluded sharing financial risk, securingfamily and managerial autonomy,and avoiding potential patent conflicts between the Toyoda Loom Worksand the ToyodaSpinrang & WeavingCompany. In August1926 the ToyodaLoom Workssued to forcea changein the nameof recordon the disputed1909 patent. This action ended the possibility of cooperationbetween Sakichiand the companyhe originallyhad established.The patentsuit was resolved after 18 months with the direct mtervenrion of Aichi Prefecture's governor,but the termsof thisresolution are not known.The shareholding interestsin theToyoda Automatic Loom Works are shown in Table6 andthe compositionof the firstcustomers is shownm Table5 [84]. 20 / WILLIAM MASS & ANDREW ROBERTSON

Table 6.'Toyoda Automatic Loom Works, Ltd. Ownership,1927 Stockholder(at timeof establishment) % of shares ToyodaSpinning-Weaving Inc. 61.5 SaldchiToyoda 5 KiichiroToyoda 5 RisaburoToyoda 5 2 OtherToyoda Relatives 5 Ichizou Kodama 5 9 Others 13.5 Total Shares 20,000 The companypresident was Risaburo, and Kiichirowas the general manager.Saldchi was a counselor,as he returnedto assumingprimary responsibilityin overseeinginvention. He alsorenewed his effort to inventa circularloom. In additionto producingcotton spinning and weaving machines profitably,the expresslystated and primary purpose of theToyoda Automatic LoomWorks, Ltd., was to researchand develop textile machinery. Sakichisuffered a mild cerebralhemorrhage in 1927.For a time he appearedto be recovering,but acutepneumonia set in and he died on October30,1930. The Toyodaenterprises continued to expand,with the establishmentof the ShonaigawaDye Worksin 1928and Toyoda Oshikiri Spinningand Weaving Company and Chuo Spinning & Weavingin 1929.

Indigenous Development of JapanesePower Loom Manufacturing Capability:A "SocialPhenomenon" and Competition

Althoughthe Toyoda Loom Works was an early industry leader - it had manyrivals - so many,in fact, that TetsuroNakaoka has referredto the activitiesof loominventors and entrepreneurs during the late nineteenthto early twentiethcentury as a "sort of socialphenomenon" widespread throughoutthe weaving regions [Nakaoka, 1982, p. 55].In 1733,John Kay, a Lancashireweaver, invented the flyingshuttle, called a batten,and doubled weaverproductivity. Kay hadmodified the pickerstick motion that threwthe shuttlefrom one loom side to theother by attachingit to a handleat thetop of theloom. The weaversimply pulled the handlewith one hand to movethe shuttlefrom side to side.Two weavers and a loommaker, sent by theKyoto prefecturalgovernment to Lyon, France in 1873,spent a yearstudying Western weavingtechnology, and the most important expertise they brought back to Japanwas their knowledge of thebatten. The battenspread gradually throughout the weavingdistricts and markeda turningpoint in thepace and extent of continuedimprovements to the traditionalhand looms. The battenis significantfor the evolutionof weavingtechnology was ks functionas the pivotallink in the transitionfrom handto powerlooms. At variouspoints in thedecades surrounding the turn of thecentury, each weaving region had its own leading loom inventors. Skigejiro INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 21

Matsudain Mie inventeda pedal-operatedhand loom in 1885,the f•rststep towardthe development of a practicalpower loom. Soon thereafter in Tochigi, KozaburoTerasawa redesigned the pedaloperated loom in a mannerthat closelyprefigured the earliestpower looms. These improved hand looms diffusedwidely in the 1890s.The transformationfrom pedallooms to power loomsprincipally required new mechanical devices for thewarp let-off motion that wouldcontrol and maintainconstant tension on the warp ,a cloth rolltake-up motion, a powerdrive mechanism, and several parts modifications of lessersignificance. These two inventors, along with others including Sakichi Toyoda,developed locally suited power looms that varied in theincorporation of the devicesneeded to transformincreasingly complex hand loomsinto powerlooms. Forminga de factotechnological community, these inventors learned from eachother and at the sametime developeddifferentiated loom designs. SakichiToyoda's early efforts at IgetaTrading Company in Aichihave already beendescribed. All of the earliestmodels and varieties of powerlooms were narrowlooms constructed from wood except for the gears,pulleys, and a few othermetal parts. Ishimatsu Kubota of Osakaproduced the f•rst Japanese iron loom in 1903.Masajiro Suzuki established a loom manufacturingbusiness in Enshuand constructedan iron narrowpower loom in 1908.Sakichi Toyoda made the transition first to mixed wood-iron and then to all-iron looms in the 1907-9 period.Michio Suzuki founded Suzuki Loom Works(the predecessor of SuzukiAutomobile Industry) and developed a power loom in 1913. The indigenousdevelopment of powerloom manufacturingcapability in its initialstages advanced productivity in the traditionalsector of specialized weavingmills. Spun from domesticallygrown, short fiber cotton,Japanese yarnwas coarse(defined as a yarn "count"below 20). Domesticconsumers preferrednarrow cloth, which was used for kimonosand appredatedfor its suitabilityfor dye absorption(especially indigo). In effect,domestic market standardscreated a barrierto œmer,imported yarn and cloth.(Direct tariff protectionwas also in place.)As higher income consumerspurchased importedcotton textiles, in part as a substitutefor nativesilk products, the tastesof thebroader consuming public changed. (For a historyof thechanging productquality choices in theJapanese textile market, see Nakaoka, 1982]. Changesin the qualityof yarnsupplied by the spedalizedspinners and woven by the specialized,traditional weavers necessarily changed in a complementarymanner. Over timethe specializedweavers learned to useyarn madeby mixingsilk and cotton fibers, or by mixinglonger, imported cotton fiberwith domesticcotton stock. Eventually the weaversbecame capable of fullyincorporating the domesticallyspun yam made from wholly imported raw cotton into their cloth. The specializedweavers maintained a competitive advantagein providingnarrow cloth made from coatsetyarn for domestic customersuntil the widespread adoption of Westerndress after World War II. During this transition,the traditionalProducing Center (Sanchi)weaving 22 / WILLIAM MASS & ANDREW ROBERTSON sectorsadapted to the changingfashion by increasinglyadopting broader powerlooms (see Table 7 below). The integratedspinning mills continued to buy the majorityof their loomsfrom foreignmanufacturers until the successfuldomestic development of iron broadpower looms during World War I. Duringthe 1920s,the large integrated,export-oriented mills increasinglypurchased domestically manu- facturedlooms. By 1929the ToyodaLoom Work's 14 bestcustomers (those buyingmore than 1,000Toyoda power looms) were integratedmills, 12 of whichwere Japanese and two of whichwere based in China.They purchased 24,781 non-automaticToyoda power looms between 1923 and 1929, equivalentto 52 percentof their1929 stock of looms. Table Z' Chssificationof PowerLooms used by the Membersof the Enshu ExportCotton Trade (March, 1937) Less More More More More More Company/Inventor Than Than Than Than Than Than Model(Location) 36" 39" 40" 50" 60" 70" Total ToyodaModel 667 730 5,961 1,014 56 14 8,442

SuzukiModel 202 188 522 952 290 55 2,209 (Hamamatsu)

Iida Model 674 104 765 90 54 - 1,687 (Hamamatsu)

NisshinModel 364 368 330 4 16 - 1,082

NogamiModel 256 220 248 12 - - 736

Total 4,073 3,924 10,988 3,218 631 159 22,993 The Toyoda Loom Works continuedto confront significant competitionfrom rival domestic power loom manufacturers in selling to the independentweavers, who were increasingly oriented to makingbroadcloth for domesticand (expanding) foreign sales. With theimmediate market success of automaticlooms in theintegrated mill marketby theirfounder Sakichi's new firm, the ToyodaLoom Works futuresales would becomeincreasingly dependenton capturinga larger share of thegrowing market for broadpower loomsin the specializedweaving production centers, the Sanchi.Table 7 showsthe extentof competitionamong domestic loom producersin the INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 23 export-orientedEnshu districtin 1937, with the largestsingle share 0 7 percent)being held by the ToyodaLoom Works in the growingbroad loomsegment [Izumi, 1980, p. 15].

The Toyoda Automatic Shuttle-ChangingLoom: CorporateIndustrial Research, Indigenous Development, Technology Transfer and International Competitiveness

SustainedJapanese research into automatic looms began in 1898when a technologistfrom Osaka Spinning Company, Takeo Yamanobe, returned from Americain 1898with an automaticloom from the DraperCompany. In 1900, the major spinningcompanies sent a groupof technicalspecialists to the United Statesto studythe automaticloom that had been inventedby J.H. Northrop and commerciallyintroduced by his employer,the Draper Company,in 1895.Inventing the Draperautomatic loom involved numerous complementaqrinventions and a scaleof industrialresearch that resulted in a rateof patentingat Drapersurpassed only by the mostinventive American companiesat the turn of the centurysuch as GeneralElectric and Westing- house.The two mostfundamental inventions were the Draper automatic loom weft-replenishingmechanism and the warp-stop motion. The formerpushed a yam-filledbobbin into place within a shuttleand pushed out theempty bobbin whenits supplyof yarnwas exhausted without stopping the operationof the loom.Because the bobbinwas inserted without stopping or even slowingthe operationof the shuttleand the loom, the Draper loom was calleda bobbin- changingautomatic loom. To enablethe weaverto operatea largernumber of loomsnow that the time-consumingtask of changingthe weft supplywas mechanized,a key complementaqrinvention was the warp-stopmotion, inventedto easethe weavers' "mental anxiety" from monitoringthe actionand preventingfaulty cloth resulting from breakage in thewarp yarn [Mass, 1989]. The OsakaSpinning Company, Calico Fimshing and Weaving, and the Mie SpinningCompany installed Draper looms in theirmills as early as 1900. (Outsideof the ,the Draper Companyinventions were more frequentlyknown as Northrop looms, primarily becausethe Drapers participatedin establishingthe moreexport-oriented British Northrop Loom Companyto markettheir inventions in Europeand elsewhere.) Japanese mills had experimentedwith both Draper(U.S.) and Northrop(British) automatic looms. Becausethey had difficulty maintainingthe looms in operating condition,they usually used the loomsas simple power looms after removing theautomatic attachments [Hayashi, 1983, p. 12.These three companies failed in theirearly efforts to operateautomatic looms, but theyamalgamated over timeto form oneof the sixmajor spinners, Toyo Spinning. Sakichi'sattempts to developa loom that couldautomatically replace theweft whenexhausted began in 1902soon after these first automatic looms arrivedin Japan.But Sakichipursued the developmentof an automaticshuttle- changingloom rather than strivingto imitateor furtherdevelop Northrop's 24 / WILLIAM MASS & ANDREW ROBERTSON design.Interestingly, automatic shuttle-changing looms were developed and introducedin Britain,but theywere even less commercially successful than the meagerpenetration of the loom marketby the BritishNorthrop Loom Company'sbobbin changer. (Less than 5 percentof Britishlooms were automaticon theeve of WorldWar II.) [Massand Lazonick, 1990]. In additionto theDraper and Northrop automatic looms, other foreign modelsof automaticlooms imported into Japan included the Stafford,Henry Bayer,Ruchi, Hartmann, and Kip-Baker looms. Domestic rivals included the Ariuma, Sakamoto,Suzuki, Noue, Kimoto , and Osaka Machinery automatedlooms. Contrasting the differencesin technologystrategies across all thesecountries and enterprisesis beyondthe scopeof this paper.The principalconcerns addressed here are relatedto the technologystrategy at Toyoda. In a 1929 articlepublished in the Japanesetrade journal, The Textile Review,I•'chiro Toyodaexplained the history of researchand development for an automaticshuttle-changing loom at ToyotaAutomatic Loom Works. The centraldetermining factor aroundwhich other importantconsiderations revolvedwas the significantlygreater machine precision required to integrate the bobbin-changingmechanism with the restof loom operationscompared with the shuttle-changingmechanisms. Because the bobbinwas inserted into the operatingshuttle in the formercase, whereas the muchlarger shuttle was replacedin the latter, the bobbin-changerrequired machine tolerances no greaterthan 1/16 inch comparedto 1/8-inch tolerancesfor the shuttle- changer. The implicationsof thedifferences in precisionstandards were dramatic in a number of areas:the extent of complementaryinvention required for integratedoperation with the restof the loom'scomponent parts; the extentof machinevibration, increasing yarn breakage and machinewear; the costsof loom manufacturing;the extentof mechanicalexpertise required for both installationand machine maintenance as machine integrity degraded with use; andthe extent of retrainingrequired for weavers.For eachof theseissues, the differencesfavored the automaticshuttle-changer. Noting the differencesin cotton and yarn qualityin Japancompared to the United States,Kiichiro explained,"Because looms in Japanmust be ableto weaveusing this sort of yarn,this issue structured research on automaticmachinery, especially in the designof thewarp stop and let-off motions" [K. Toyoda,1929, p. 20]. The mainadvantages of the bobbinchanger were that: 1) lessenergy wasrequired to changethe muchlighter bobbin than the heaviershuttle, a differenceof slighteconomic consequence; and 2) thesmaller bobbin could be storedin largerquantities in the bobbin-magazinecompared with a smaller numberof shuttlesrequLdng more frequent refRling and morelabor time in preparationbefore installing in theshuttle magazine. A mill with a 1,000 normal power looms requiredmore than 300 weavers out of a total mill work force of four to five hundred workers. A mill with 1,000automatic shuttle-changing looms required only 30 weavers INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933 / 25

(only20 under the ideal conditions at the Toyoda pilot mill) and a totalof only $0 mill workers.The additionalsavings on mill laborin a mill with 1,000 bobbin-changinglooms was possiblyas much as 12 workers.However, Toyodadeveloped a larger shuttle that could carry a largerbobbin, requiring lessfrequent refilling of the shuttlemagazine. With the largershuttles, the difference in the number of mill workers was reduced to seven fewer workers on bobbin-changers.In either case the labor savings were small relative to the other factorsinfluencing relative costs, and the laborcost savingswas of courseof lessconsequence in lower-wage Japan than in theUnited States. Even thoughthe shuttle-changerrequired less redesign and material changeon therest of a non-automaticloom than woulda bobbin changer, the requiredcomplementary invention and improvements in manufacturingwere considerable.In theirfirst efforts at the Kariyaexperimental plant, Kiichiro attachedshuttle-changing mechanisms to two hundred normal looms producedat the ToyodaLoom Works.His summaryof the experiencewas that, "It was a monumentalfailure...With hindsight, this project appears stupid,but at the timewe wereworking hard to understandthe calibrationof automaticlooms. As one might expect,the loomsran as if possessedby demons.They repeatedlybroke down and refused to run smoothly" [K. Toyoda,1929, p. 23]. Over the years,the effortsat redesigningweft exchangemechanisms providedan importantstimulus to moreextensive inventive activity. Sakichi's inventionswere not a soloeffort, but increasinglyrelied on an a groupof contributorswhom he andKh'chiro assembled. Although the companylists a total of 85 patentsand 28 utilitymodels registered for SakichiToyoda, the listingexplained that, especiallyin Sakichi'slater years,Kh'chiro and two employeeswere also involved in inventiveactivities. Research by IshiiTadashi of theJapanese Patent office andShoji Okumura, an independent historian of technology,has established that Sakichi's actual role was significantly less than hewas credited with in thecelebratory biography issued shortly after his death, which was editedby Kiichiro and Risaburo.This biographyis the source drawnon, directlyor indirectly,by all English-languageaccounts. The Patent Officelists 29 patentsawarded to Sakichi,with manyof the othersactually obtainedby Kiichiro[Okumura, 1985, p. 108-9;Ishii, 1979].It is clearthat Kiichirowas principally responsible for thecompany's inventions after 1921. The increasedtendency toward corporateas opposedto individual inventionwas a more generalphenomenon, even in the area of weaving technology.Ishii hasgraphed the trendsin loom-relatedpatents for all of Japanfrom 1907 to 1921 for patentsregistered to individualsand patents registeredto companies.Those graphs indicate that annualcompany patents variedbetween one to tenwith no trend(but with an average estimated by the authorsof aroundfive), while individually held patents dearly trend down fromthe 60-70 per year range to between20 and30 peryear by theend of the period.On the otherhand, corporations held 65 percentof the 131 weft- 26 / WILLIAM MASS & ANDREW ROBERTSON replacementmotion patents taken out from 1926to 1932 [Ishii,1979, no. 4, p. 27;and no. 5., p. 17]. Despitethese indications of significantcorporate efforts at derdoping loomscapable of automaticweft replacement,Toyoda Automatic Loom's sole significantsurviving competitor during the prewarera was the automatic bobbin-changingloom suppliedby the EnshuLoom Company.The devel- opmentof the Enshuloom was primarily the resultof PresidentSakamoto's effort. He was an exceptionalinventor who did not developan internal researchstaff and organization remotely close to the scaleattained by the two Toyodafirms. However, Sakamoto had developedan enduringif periodic workingalliance with Toyo Spinning,a clothmanufacturer with the longest sustainedinterest in devdopingthe automaticbobbin-changing loom. Toyo Spinningalso made an exceptionalcommitment of resourcestoward the loom'ssuccessful development. EnshuLoom originated as a single-product,narrow loom manufacturer in 1920.Having worked as chief engineer at theKimoto Ironworks, Sakamoto was askedto takecharge of renewedexperiments with Northropautomatic loomsat Toyo Spinningin 1920 at the requestof Toyo'smanufacturing supervisor,Aizaburo Mario. Sakamotowas hired as an engineerat Enshu Loom in 1921.He spentfive yearsand 20,000yen developingan automatic bobbin-changingloom prototype,adapting the Draper design.During this time,Dr. Manoreattached the automaticmechanisms to the originalimported automaticlooms in 1923,and imtiated a four-yearintensive study (1925-1929) in two Toyo factoriesof ten or more types of automaticlooms and attachments.The Enshuautomatic loom received widespread public attention when529 loomswere installed at the NakabayashiIntegrated Cloth Company in October1929 with "120 of the leadinglights of the textilemachinery industryin attendance"[Yanagihara, 1979, p. 41-42,46; Suzuki,1949 p. 192-96; Uno, p. 519-20]. In termsof marketshare and overall prewar competitive performance, salesof the Toyodaautomatic loom increased from 44 in 1925 to a prewar peak of 12,104by 1937,while EnshuLoom had first year salesin 1926 of 1,126 automaticlooms and rose to a pre-warpeak of 10,717 in 1935 [Taniguchi,1985, pp. 63-64]. As wasthe casein the developmentof the Draperautomatic loom, the increasingmechanical complexity of inventingcommercially acceptable automatedmachinery required organizing industrial research on a significantly largerscale, a processreflected in the increasingnumber of technicalhigh schoolgraduates entering engineering positions in the textilemachinery firms. In 19001.7 male graduates per year were so employed, whereas the rate of hire wasat 3.4 per yearby the 1930s.Over the entireperiod over a thirdof these hireswent into theToyoda Loom Works alone. For the period1926-1931 the ToyodaLoom Worksmade 18 suchhires, and the muchsmaller, but rapidly growing,Toyoda AutomaticLoom Companyhired 14 [Taniguchi,1985, pp. 55-56].As notedearlier, Toyoda's main automatic loom rival Enshu Loom INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933 / 27 had key individualengineers and acquiredtechnical knowledge by drawing from its allianceswith leadingmanufacturers, but Enshu Loom had no comparable internal staff for industrial research. Furthermore, the organizationaldevelopment of manufacturingand marketingat Toyoda AutomaticLoom Workswas essentialnot only to make and sell the new invention,but alsoas a sourceof experienceessential to furtherrefinement of the imtial innovation.

A Merger Attempt and Failed TechnologyTransfer Havingprovided the Japanesetextile industry with textilemachinery sinceits founding,Platt Bros.was very interestedin the openingof the KaritaniFactory and the operationof 520Toyoda automated looms. Mitsui Bussan,Platt's representatives in Japan, provided a full report.Platt ordered 205 automatedlooms shipped to their plantin Bombay,India for close examination.On the basisof this experience,they decided to pursuethe purchaseof theToyoda patent rights. The negotiationbegan in April1929 and lasted for several months. The resultswere better than Toyoda expected. Platt wanted to purchase thepatent rights in variouscountries outside Japan on thebasis of a royalty contract.Toyoda preferred a lump-sumpayment. Platt wanted exclusive access to allloom markets west of Singapore,including India. Because of theextreme complexityof thenegotiations, Platt Bros. invited Toyoda Kiichiro to Britain. At thetime, however, Kiichiro was in theUnited States, showing two loomsto thedominant American loom producers, Draper and Crompton & Knowles.In responseto the Plattnegotiations, he hurriedback to Japanand thenset off immediatelyfor Britain.Kiichiro met with his employee Chosaku Suzuki and Aoki of Mitsui Bussan. He closed the deal after two months on December24, 1929.According to theterms of thecontract, Platt Bros. gained theproduction and marketing rights for everymarket except those of Japan, China,and the UnitedStates for •100,000. A keyToyoda engineer, Suzuki accompanied one automaticloom to Britainin January1930 in orderto assistPlatt Bros. in startingup production. Suzukispent one and a halfyears in Britain.After some seven months, Suzuki wasable to undertaketesting a prototypeloom. His report was as follows: The so-calledfirst stepof prototypingtwo machineshas been completed,and these machines are now in actualoperation at the Prestonfactory. This is most heartening.Looking at the manufacturingfrom its initiationto thepresent, it is altogetherlike the HiokiFactory period of our owncompany's development. I mostlyleave these difficu16es to yourimagination. Moreover,because of the increasingseverity of the recession, andvarious manufacturing practices, we stillcan not produce looms of thesame quality as the two sample looms sent from our company in Japan.The exhaustiveand precisenature of loom manufacture surprisesthe foreignersat everyturn. This pleasesme that these 28 / WILLIAM MASS & ANDREW ROBERTSON

Englishmenwho refusedto recognizethe merit of automathag[to producethe] automatic loom are beginning to perceivethe necessity for them.In thisway, we graduallywork towards operation of the loomsat 244rpm [p.142]. One responseto the severedecline of the Britishcotton trade was the concentrationof textile firms throughan amalgamatedorganization, the LancashkeCotton 'Corporation (LCC), createdin January1929. One of the tasksof thisorganization was the rationalization of machineryand equipment. In order to assistmembers in their choicesof equipment,the CottonCorporation solicited from eachautomatic loom manufacturerforty machines to be tested between the end of 1931 and 1932. In order to enter this competition,Platt Bros. rushed the start-upof productionin orderto have fortymachines on handfor the test.Suzuki was crucial to thisprocess. At the endof March1932, forty machines were shipped to the LCC. The resultsof this test demonstratedthat the Northrop,Vickers-Stafford, Whitt,aker, and Platt-Toyodalooms were all competitive.Although there was greater breakage and wasteon the Platt-Toyodalooms, significant improvement in these aspectsoccurred over the four-month test. Qualifiedas these results might be for Platt-Toyoda,this was a notable achievement,given that someof the loomswere tun for the [ttsttime during the testingpefiod and this was, in effect,the fttstorder of the Toyodaloom designproduced in Bfitain.In addition,the otherthree loom manufacturers andin particularthe Lancashkelooms included in the testwere using fully trained workers,which was not the case for the Platt-Toyodalooms [LancashireCotton Corporation, 1931]. The factthat this level of testing- in termsof machines,duration, conditions, and independencefrom company accessto experimentationfor purposesof learning- couldbecome a basisfor assessingtechnological and business potential, is in starkcontrast to thehistory of testingand experimentation atToyoda enterprises described above. In May 1931,with his missioncoming to an end, Suzukiprepared to return to Japan. Based on his experiencesin guiding the prototype developmentof the Platt-Toyodaautomatic loom, he wrote up detailed instructions,which were submitted to MitsuiBussan and then passedon to Platt Bros. Soonafter Suzukireturned to Japan,in November1931, Platt Bros. contactedToyoda Automatic Loom, claiming that becauseof the errorsand deficienciesin theblueprints, explanations, and models submitted under article 7 of thecontract, requiring that "precise information and detailed warnings be outlined,"they would be unableto marketthe automatedloom. Estimating a lossof •50,000,Platt Bros. demanded a reduction in thepatent fights transfer fee.In December1931, •61,500 was to havebeen paid. Platt Bros. proposed postponingthis payment. Toyodaquickly conducted a study evaluating the Platt Bros. claims. The resultssuggested the following: INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 29

The errorsin the blueprintsare regrettable.However, for the most partthey are trivial,being largely revisions made during prototyping. We do not believe that these errors supportthe extent of the damages.Our companyprovided Platt Bros. two samplelooms, and in addition sent Suzuki to guide the prototyping.Had these opportunitiesbeen sufficienfiyused, these damages should have beenavoided. Thus we cannotagree to a reductionin the patent transferfee. However, becauseof the variousserious problems afflicfngBritain because of the Depression,we shoulddo whatwe can to in some smallway alleviatethe Platt Brother'spatent fee burden.Let usbegin these discussions [pp. 146-7]. After extensivenegotiations, the two companiesreached a compromise. Platt had alreadypaid Toyoda AutomaticLoom Companyœ38,500. They negotiateda setdementsubstituting a singlepayment of œ45,000for fifteen paymentsscheduled over seven years, totalingœ61,500 pounds. The renegotiatedcontract was signedby Platt Bros.in Englandin July and by Kiichiroin Japanin September1934. The productionand marketingof the Toyoda-Plattautomatic loom werenever established on a sustainablebasis. Only 200 loomswere soldover the next two yearsof production.The reasonsfor the failureof the Platt- Toyodaloom are disputed by thetwo sides. From the beginningof negotiations,Kiichiro considered it highlylikely that Platt waspursuing a preemptirestrategy of purchasingToyoda's patent rightsin order to forestallcompetition. As a defensivetechnology strategy, buyingthe Toyodapatent rights was at leastpartially successful. By meansof this agreement,Platt Bros.delayed the competitionand diffusionof Toyoda automaticlooms into their marketsin Asia, particularlytheir largeIndian market,and into Europeas well. By 1936,the Toyoda company began negotia- tions throughthe Mitsui BussanLondon office to allow it to sell its own automaticlooms directly in whatuntil then had been Platt's exclusive territory. A new agreementwas negotiated in 1937whereby Toyoda would pay Platt3 pounds,10 shillingsfor everyautomatic loom soldin India;outside of India, but within the registeredarea for patentrights, the paymentwas 1 pound,15 shillings;and elsewhere the paymentwas one pound. Toyoda was onceagain able to exportits automaticloom directlyto the wholeworld. Shortlythereafter the Japanese economy was militarized, and by the war'send automaticloom patents taken out in variousforeign countries had expired. For a timePlatt Bros. aggressively continued to pursueformalizing its relationshipwith the ToyodaAutomatic Loom Worksthrough its Mitsui agents.Mitsui had beenPlatt Bros.' exclusive agent for both weavingand spinningmachinery imported into Japan. At thesame time, it representedboth Toyodas(the Loom Works and the Automatic Loom Works) in domesticand foreignsales. Platt Bros.,anticipating its impendingcompetitive decline, was eagerto explorethe possibilitiesfor furthercollaboration and possible merger with theJapanese companies. Mitsui and the older Toyoda Loom Works were 30 / WILLIAM MASS & ANDREW ROBERTSON ambivalentabout Platt's proposals, and the ToyodaAutomatic Loom Works wasclearly reticent from the start.The ToyodaAutomatic Loom Works was the technologydriver and the fastergrowing company, less interested in joiningwith companies that might slow it down. The development,production, and salesof automaticlooms spurred the developmentof spinningmachinery at the ToyodaAutomatic Loom Works.For the period1927-1929, the ToyodaAutomatic Loom salesof weavingmachinery exceeded 7 millionyen, whereas the valueof spinning machinerysold was only 265,000 yen. During the next three Depression years, the valueof weavingmachinery sales was almost 4 millionyen, and spinning machinerysales rose to 2.7 millionyen. Beginning in 1933,spinning exceeded weavingmachinery sales and continuedto do so through1938. During this period,annual spinning machinery sales averaged over 5 millionyen, nearly 75 percentgreater than the not quite3 millionyen average for annualweaving machinerysales [Toyoda, 1967]. Mitsui was confronting a problem increasingly commonamong tradingcompanies involved both in importingand in representingdomestic companies that hadbecome increasingly successful in productionoriented toward import substitution. By the early1930s Mitsui suffereda stagnationand loss of thespinning frame import business similar to whatit hadearlier experienced with Britishimports into Japan. The problem wasmanaging relations with the foreignclient and deciding when and how the exclusive contract could be broken or amended. In this case Mitsui's exclusive tradingfor Platt Bros.was contractually limited to spinningequipment, but practicallythe limitationson representationwere generally applied to all textile machinery.Mitsui brought both Toyodas to the tablewith PlattBros., where Mitsui was lookingto resolveits own internalconflicts [Taniguchi, 1992, p. 99]. Policytransitions were to be expectedas circumstances changed. The contrastin methodsof managingthose transitions provides a windowinto the extent of changesin the relativecompetitive strengths of the firms, the perceptionof thesechanges, and theirimpact on businessstrategies. Thus, within Mitsuithere were differingperspectives on the valueof mergingPlatt Bros.,a maturecompany, with the two rapidlyemerging Toyoda firms. The managerof Mitsui'stextile machinery department, Furttichi, openly stated that "...the two (Toyoda)fLrms have little or nothingto gain from Platt Bros. cooperation,that they havealready copied all the bestof Platt Bros.designs andcan continue to do so,that Platt Bros. have nothing of realvalue to addto the proposedmerger and that both fro'nswould be betteroff withoutour participation"[Platt Bros. Archives DDPSL 1/106/37 March30, 1931]. The seniorMitsui managers from Osakaand Tokyo, Seko and Nanjo, respectively,still saw value in PlattBros.' participation, although the magnitude of that valuewas open to question.Toyoda Loom's president Kanematsu arguedthat Platt Bros.must purchase stock shares at facevalue. John Bissett, the Platt Bros.director responsible for technology,was in Japanat the time negotiatingfor Platt. Bissettmaintained that "Platt's name, experience, INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 31 manufacturingknowledge, research, and contact with the textiletrades in all thecountries of theworld had a definitevalue and would have to be paidfor by sometangible share recognition of that value."In response,the Mitsui BussanTokyo seniormanager reported to Bissetof Kanematsu's"certain" beliefthat his companycould do anythingPlatt Bros.could do, and do it better and cheaper.With this in mind Kanematsu"would not seriously considerPlatt's expected price for participationin the merger"[Platt Bros. ArchivesDDPSL 1/106/37April 8, 1931]. Bissettwas surprisedto discoverthat one enduringresult of Platt's licensingthe Toyodaautomatic loom patent was a diminutionof hisJapanese counterparts'respect for hiscompany's capabilities. According to Bisset, ToyodaAutomatic Loom is stillwilling to negotiatebut the priceis goingup... (O)ur dealwith Toyodafor the manufacturingrights of the automaticloom is actingas a handicap.First of all it hasfilled Automaticloom's mind with exaggeratedideas of the valueof their loom.Next theyare furrelyconvinced that as textilemachinists they arenow really superior to Plattsand other English firms, which they sayare withoutnew ideas...Finally,they have not said,but have doneeverything to indicatewithout actually saying it, thatthey look down on us for havingpaid so muchand havingpaid so litfie discussion,very poor business people! All thisis no doubtpart of the schemeof bargainingbut it is disquietingto thinkthere is justa litfiereal substance in it. However,I'll treatit as bargaining[platt Bros.Archives DDPSL 1/106/37 April 23, 1931]. Anotherfactor reflecting and conditioningthe relativechange in competitivenessof the Britishand the Japanesefrans was the continuing depressionin sales of Plattmachinery, whereas 1931 saw a recoveryin salesfor both Toyodas.In March1931 Bissett reported that both companieswere occasionallyengaging in pricewars. During the nextmonth trade conditions had changedsufficienfiy so that by lateApril he wrotethat, "...both •ms havebooked good orders. They...(will) be busyfor the next eightor nine months...Thishas stiffened the attitudeof both fzrrns.They alsoknow the priceswhich we havebeen quoting and how far belowthem they can sell" [plattBros. Archives DDPSL 1/106/37 April23, 1931]. A thixdfactor undermining the basisfor corporateamalgamation was thelaxge difference in therelative valuation of thetwo companies. Particularly vexingwas the disparity in perceptionsof thevalue of thefixed assets (land, buildings,factory, machinery, patterns, furniture, office equipment, and so forth)of theToyoda Automatic Loom Works. Toyoda Loom Works put the value at 1.0 million yen, the AutomaticLoom Works self-valuationwas 1.67million yen, and Bissett's valuation was a fractionover 1.2 millionyen. Furthermore,the roughcalculations advanced by Mitsuito explainthe value basisof the two Toyodasdrew on the companies'closely held financial records.Bissett was initially assured that these records were going to be made 32 / WILLIAM MASS & ANDREW ROBERTSON availableto him, but the "books"never materialized[Platt Bros. Archives DDPSL 1/106/37 May 16, 31, 1931;Taniguchi, 1992, pp. 114-15]. The largedifferences in valuationwere an outcomeof dramatically differentconceptions of howto justifyvalue determinations. In particular, the ToyodaAutomatic Loom Works was notable for its lowoperating capital and low profitabilityresulting from its high developmentcosts. There was no meansto establisha cormnonbasis for dermingthe termsand levels of asset valuations.As a resultthere was a largespread in the participants'current capitalizationof the variouscompanies' expected future revenuestreams. Mitsuimanagers attempted to serveas intermediaries in the negotiations,but the gapwas too great.Disagreements and changing assessments among Mitsui managersdiffused its supportand ability to brokerany short-term resolution. Meanwhile,as negotiations stretched on, thechanging relative capabilities and performancesof themachinery suppliers led the Mitsuisenior managers most predisposedto valuePlatt's current strengths to backaway from supporting anymeasures that might inhibit the development of theJapanese firms. MitsuiBussan, the initiatorof the mergerdiscussions, was at the start more concernedabout damagingits relationshipwith Platt Bros.,but the negotiationsdid accomplishtheir goal of "strengtheningtheir ties to the two Toyodasin orderto morefully participate in the developmentof thedomestic textilemachinery market" [Taniguchi, 1992, pp. 99, 120].Mitsui's policy shifts andrelative failure to guidethe mergernegotiations to completionare readily comprehensiblewithin the context of developingJapanese self-sufficiency and exportcompetitiveness in textile machinery production. Thus,the negotiations broke down because the two Toyoda companies disagreedabout their respectivemarket valuations, and both refusedto open theirbooks for theother and to Platt.The olderToyoda company was secure with risingsales to specializedweavers, and the newerToyoda company was beginninga high-wireact in pursuingthe developmentof an automobile business.The Toyodasin effectwithdrew from negotiations by lateMay 1931. Finally,Platt Bros. strategic orientation cannot be adequatelyassessed without linkingthe overlappingpatent and mergernegotiations with the simultaneousformation by the leadingBritish textile machinery fLrms of TextileMachinery Makers, Ltd. (TMM). The Platt Bros.Board of Directors approvedtheir participation in the amalgamationon September17, 1931.Platt wrote to Mitsuibefore the end of the monthexplaining that futuremerger proposalswould have to be put beforethe TMM board.The letterto Kiichiro with complaintsabout the technologytransfer process and the requestfor renegotiationof the patentlicense fee soonfollowed in November.In the midstof depressedtrade, the effortsto rationalizedomestic production and curtailprice competition were accompanied by contractionin the resources devotedto researchand development. Bissett, the directorwho not onlywas mostactive in assessingnew technologies and the technological capabilities of the two Toyodas,but who alsoserved as managerof the Experimentaland ResearchDepartment, newly established inJune 1928, retired from Platt Bros. INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 33 in November1931 at exactlythe sametime that Platt'scomplaints forced renegofiafionof the Toyodalicensing fees. Although Platt laterrenewed a proposalfor mergerin 1933,neither company responded [Platt Bros. Archives, DDPSL 1/91/5 September17, 24, November4, 1931;1/91/31 June13, 1928, November4, 1931;Taniguchi, 1992, pp. 117].

TechnologyTransfer from Toyodato Toyota

As noted earlier,before Kh'chirotraveled to Englandin 1929 to conductthe patentnegotiations with PlattBros., he visitedthe leadingloom manufacturersin the United States,Draper and Crompton& Knowles.The officialand widely reported purpose of the trip to the U.S.was to attemptto sellautomatic loom patent rights or at leastto seta pricebasis for comparison and negotiationwith Platt. The British-basedhead of the textilemachinery divisionof MitsuiBussan, Furuichi Tsutomu, tells a differentstory. Aware that about70 percentof Americanlooms were alreadyautomatic and that the remainderwere weaving cloth more difficult to adaptto automaticlooms, and believingthat Toyoda's asking price at doublethe Platt licensing fee was highly unrealistic,Furuichi attempted to excusehimself from the negotiatingeffort. Kiichiromet with Furuichiprivately and explained that "these proceedings are not in orderto sellin the UnitedStates...I entreat you to comewith us [so]I can act freely." Wherever Fumichi and Kh'chirotraveled, Kh'chiro was absorbedin the studyof machinetools. Having already decided to attempt automobilemanufacturing in Japan,Kiichiro was using the patent rights negotiationsas a pretextfor hisresearch [Fumichi, 1959a, p. 22]. It is well knownthat, with Sakichi'sblessing, the feesfrom PlattBros. were to be devoted to developingautomobile-related research and development.Kiichiro left thepatent negotiations to Fumichiand other Mitsui representatives,and he spenthis time studyingmachining and machine tools, v/sitingauto assembly plants and parts manufacturers in the United States and Britain.Returning from his tour in March1930, Kiichiro organized a groupof engineersand began researchon gasolineengines within the Toyoda Automatic Loom Works. Simultaneouslywith his direction of auto researchand product development,Kh'chiro set about developingthe company'scapabilities for precisionmachining and improved mass production methods, prerequisites for future automobilemanufacturing. He introducedthe first assemblyline conveyerbelt in Japan- for loomassembly within Toyoda Automatic Loom Works.He alsoimported high-quality German and American machine tools; he installedan electricfurnace in the foundryto providehigh-grade castings; and he introducedJapan's first moldingmachine. Kiichiro also hired a chemicalanalyst, and constructed the facilitiesfor chromeplating in orderto improvethe precision and durability of the automaticloom's rotating parts. In effect,Kh'chiro was upgrading the loom manufacturing capability as a testbed and trainingsite for developingautomobile manufacturing capabilities. How 34 / WILLIAM MASS & ANDREW ROBERTSON effectiveand profitable these techniques were for loom manufacturingas well is a matterfor futureresearch. The ToyodaAutomatic Loom Works, as shown in Table 8, had machineorders far exceedingits currentproduction capacity. Insteadof expandingto fill existingorders, Kiichiro was leading his company into a high-riskstrategy to be in on the startof the Japaneseautomobile industry. Table8,' ToyodaAutomatic Loom Company, Orders and Deliveries, 1932-1937 (Semi-AnnualData) Looms SpinningFrames Untilled Untilled Year Orders Deliveries Orders Orders Deliveries Orders

1933 1,043 1,937 5,253 285 213 702 1933 3,331 2,096 6,488 645 262 1,085

1935 1,349 2,947 7,332 53 662 1,371 1935 906 3,437 4,801 399 525 1,245

1937 9,268 6,459 26,029 594 504 1,718 1937 1,030 5,645 21,414 221 431 1,508 In September1933 •c•o oversaw•e completionof •e T•e A en•e proto•e. In December•c•o asked•sab•o to convenean emer- gencybo•d of •ectors mee•g, where•e boardapproved the estab•shment of an AutomobileDepar•ent re=oacfiveto September1, 1933. At an ex=aor•a• mee•g on Janua• 29, 1934,Toyoda Automatic •om Works stoc•oldersvoted to increasethe company'scapita•afion to 3 •on yen andto addautomobile manufac•e andstee•a•g to •e businesses•sted m its mcles of mco•orafion.In 1935•e •s• of Co•erce and Indus• anno•ced •e plan•at wo•d become•e Law Conce•g •e Manufac•e of Motor VeNcles,enacted m May 1936.•e planmade k cle• •at onlya sma•nmber of domesticauto producers wo•d be •owed to compete,each participanthamg to passa capaci• h•dle of 20,000cars. •e automobile depar•ent at •e ToyodaAutomatic •om Workscompleted its f•st Model A1 passengercar proto•e by May 1935, and m Au•st, the company increasedits capita•afionto 6 •on yenafter •e Cab•et decidedto accept ß e ou•e of •e veNcle manufac•e b•. •e •st use of the "Toyota"name appearedon the Model • automobiledeveloped m 1936.•e ToyotaMotor Co.,Ltd. wasestab• •th a capitalof 12 •on yen • Au•st 1937.•sab•o Toyodawas pres- ident and •c•o Toyodawas executive •ce president.The orgamafional s•c•e consistedof seven•ncfion• depaments •clu•g ad•s=afion, INNOVATION IN THE TOYODA ENTERPRISES, 1885-1933/ 35 sales,manufacturing, engineering, and technical.Kiichiro was the headof the researchdepartment, but he wasalso direcfiy in controlof the "totalvehicle engineeringadministration," a department with responsibilityto improveall processesand products in coordinationwith the otherdepartments. Further- more,the manufacturingand engineeringdepartments were to work closely togetherin order to build low-price,high-quality vehicles; "the respective managersof eachdepartment were given simultaneous managerial control of the other department"[Toyota, 1988, p. 67]. The innovativestrategy and structureof the ToyotaMotor Corporationcontinued for a timeto drawupon the capabilitiesdeveloped through the organizationalexperience of industrial research,product development, and manufacturing at the ToyodaAutomatic Loom Works in addition to the critical new resources Kiichiro and other Toyotamanagers integrated in orderto "leap"into automobileproduction. Not only did the organizationalcapabilities of ToyodaAutomatic Loom providea resourceplatform upon which to attemptanother "leap," both technologicaland organizational,but severalproduct generations of success reinforcedthe visionof top managerialand technicalleadership oriented to takeon the challengesof integratingindustrial research, product development, andmanufacturing in a newindustry.

References

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