WILLIAM H. DAVIDSON
Mike Flynn, president of the International Division of Information Network Services Corporation, was undecided as to how he could best approach several delicate issues with his Japanese joint venture partner. He needed to develop an agenda for his trip to Japan, scheduled for the following day. In many ways, he considered this trip of vital importance. For one thing, the problems to be discussed were likely to affect the long-term relationship between his company and the Japanese partner in the management of their joint venture. Moreover, this was his first trip to Japan in the capacity of president of the International Division, and he was anxious to make a good impression and to begin to build a personal relationship with senior executives of the Japanese firm. Flynn had assumed the position of president several months previously in May of 1988. He was 40 years old and was considered to be one of the most promising executives in the company. After 2 years of military service followed by business school, he had joined a consulting company for several years prior to accepting a position with Information Network Services Corporation (INS). Prior to his promotion to the presidency of the International Division, he had served as managing director of INS’s wholly owned subsidiary in Canada.
INS was a major provider of value added network (VAN) services in the United States. Its principal products included high-speed data communications (packet switch-ing), data base management, transaction processing services, and a variety of industry-specific information services. The company’s total sales for 1988 were roughly $250 million, and it had recently established successful presences in the United Kingdom and other European countries. International operations accounted for roughly 25 per cent of the company’s total sales, and the company’s top management felt that international markets represented a major field for future growth.
The company’s management recog-nized that in order to capitalize on the rapidly growing Japanese market, a direct presence was needed. By the mid-1980’s, the company began to receive a number of inquiries from major Japanese corporations concerning licensing possibilities. INS was particularly interested in the possibility of establishing a joint venture to provide VAN services.
The company, after 2 years of demanding negotiations, was successful in establishing a joint venture in Japan with Suji Company, a leading Japanese tele-communications equipment manufacturer. The arrangement was formalized in the summer of 1987.
Suji was one of the companies that approached INS initially to arrange a licensing agreement involving VAN technology and expertise. It appeared to be an attractive potential partner. Suji was a medium-sized telecommunication equipment vendor that was directly tied to one of the major Japanese industrial groups. The company had only limited sales to Nippon Telegraph and telephone (NTT), the national telephone company. About half of its sales were exported, and the remainder went largely to other Japanese firms within the same industrial group. Suji had established a reputation for high quality, and its brands were all established.
In the mid-1980’s, as the Japanese telecommunications market was deregulated, Suji began to explore opportunities in the telecommunication service market, particularly in paging and mobile phone services. Prior to deregulation, telephone and related services were monopoly markets served only by NTT. Under the terms of the 1984 New Telecommunications Law, other Japanese firms were permitted to offer these services to the general public. VAN services in particular could be initiated simply by notifying the Ministry of Posts and Telecommunications. The Ministry of International Trade and Industry had established several programmers to provide incentives for new VAN services, including tax breaks and low-cost...