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Alps Electric Co., Ltd. Business Information, Profile, and History

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1-7, Yukigaya-Otsuka-Cho Ota-ku
Tokyo
145
Japan

History of Alps Electric Co., Ltd.

Alps is one of the largest electronics companies in the world; it is, among other things, the world's largest manufacturer of floppy disk drives. Alps produces tens of thousands of different parts and components for manufacturers as diverse as Honda, General Motors, Goldstar, Matsushita, and Hitachi.

As one of the few secondary manufacturers to remain independent of client companies and other industrial groups, Alps is an oddity in Japanese industry. In order to maintain this independence, the company has had to avoid a "vertical" diversification. Instead of moving from parts manufacturing to finished products, which would have put Alps squarely in competition with its clients, the company expanded "horizontally," developing a wider and more sophisticated array of components and preserving harmony with its customers.

Alps's customers are some of the largest companies in the world; these companies could certainly establish their own parts manufacturing subsidiaries. The fact that they haven't tried to replace Alps testifies to the company's many strengths. It need only be concerned with a very narrow function, and it can benefit from greater economies of scale by selling the same product to several different customers.

The man behind Alps Electric is Katsutaro Kataoka, a self-styled industrial revolutionary in the mold of Sony's Akio Morita. A displaced war veteran and mechanical engineer, Kataoka worked briefly for Toshiba. He was uncomfortable working for a large firm, so he left Toshiba, borrowed $1,400 from his family, and set up a small manufacturing shop in Ohta, a drab industrial suburb of Tokyo. The company opened for business in November, 1948 as the Kataoka Electric Company.

Kataoka's original product line consisted of an unimpressive variety of simple-technology components such as light switches and variable capacitors. He peddled these items to a number of larger manufacturers, offering a reliable product at low unit costs. The company's business grew steadily during the 1950s, but while its volume increased, its technology changed very little.

But as the products manufactured by Kataoka's customers became more complex, these customers began to pressure Kataoka to develop a wider variety of more durable, high-quality parts. Kataoka began investing more heavily in research and development and expanded its operations with new factories. A subsidiary, Tohoku Alps, was established in August of 1964, and the following December Kataoka Electric changed its name to the more English-sounding Alps.

Alps Electric began a period of unprecedented growth during the mid-1960s as the Japanese consumer electronics industry took off. Alps components were incorporated into thousands of products, and it established significant market shares in new sectors, such as radio tuners. A technical agreement with General Instrument in 1963 led to Alps's acquisition of UHF television tuner technology; today Alps is the world's leader in TV tuner manufacturing. Eager to capitalize on its profitability and take advantage of promising markets, Alps entered into an agreement to produce car radios with Motorola in 1967. The venture was moderately successful, and it gave Alps a chance to learn about many new technologies developed by Motorola. Alps also established joint ventures with local manufacturers in developing countries, including India (1964), Taiwan (1970), and South Korea (1970).

By 1970 the company was the largest independent component manufacturer in Japan, but it was unable to win the respect usually accorded a company of its size. Because it was limited to producing components, and therefore a captive of its customers' business, analysts and industrialists considered Alps a secondary company, regardless of its sales volume.

In fact, it was Alps and secondary manufacturers like it that made Japan's export-led boom in electronics possible on such a scale. Their billions of simple pieces, produced at very low cost, were essential to final manufacturers. Alps was constantly motivated to maintain its high quality and low prices by the unspoken threat that its customers could find other suppliers.

During the 1970s, Alps established subsidiaries and joint venture companies in the United States, Brazil, and West Germany. It operated a joint venture to produce semiconductors with Motorola from 1973 to 1975, and in 1978 took over Motorola's share of the car stereo venture, changing its name to Alpine Electronics. Alpine subsequently introduced a line of successful upmarket radios under its own name for Honda, BMW, Volvo, Chrysler, and GM.

When exchange rates have depressed the sale of Japanese electronic goods in foreign markets, final manufacturers have often protected their profit margins by demanding lower prices from suppliers such as Alps. While these suppliers were in many cases powerless to argue, Alps began to seize the initiative on several fronts. It began to develop special components, such as automobile electronics devices and to contribute to research on new end-products. No longer just a supplier but now an active participant in the design process, Alps is not in a position to have its prices dictated by its customers anymore.

The company's graduation to a higher position in Japanese industry had an immediate effect on its business. Alps developed computer keyboards for IBM and Apple, and later took over Apple's keyboard and "mouse" plant in Garden Grove, California. Alps began to produce floppy disk drives in 1980 and steadily built market share; its customers include IBM, Apple, and Commodore. By 1985 it was the world's largest producer of floppy disk drives.

That year the company decided to try to exploit certain sectors of the market as a primary manufacturer. The computer market slumped during 1987, however, and the company was compelled to take losses in most of its computer-related product lines.

Alps intends to reduce its reliance on secondary manufacturing gradually, but for now, its major products are still secondary: switches (23% of sales), floppy disk drives and printers (21%), car audio sets (19%), and VCR parts, including magnetic heads and cylinders (14%).

As a supplier, Alps has many strengths. The company's main plants are located in a rural area of northern Honshu. It has little trouble finding more plant space near existing facilities, and has access to cheaper labor. It makes great use of subcontractors, particularly in labor-intensive and marginally profitable processes. Assembly lines are being automated, as are the warehouses. Alps is likely to retain these advantages for many years; they will bolster the company's sales while it undertakes the difficult task of establishing itself as a primary manufacturer under the energetic leadership of its president, Masataka Katoaka.

Principal Subsidiaries: Tohoku Alps Co., Ltd.; Alpine Electronics Inc.; Alpine Electronics Manufacturing of America, Inc. (U.S.A.); Alps Electric (U.S.A.) Inc. (U.S.A.); Alpine Electronics of America, Inc. (U.S.A.)

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