Bigger Is Better

Japanese business, long dominated by a handful of family cartels and other industrial combines called zaibatsu, used to use size as a measure of success. The bigger the better. When U.S. occupation authorities took over after World War II, one of their first acts was to break up the zaibatsu, notably the monopolistic Japan Steel Co. The surge of domestic competition that followed stimulated the country's phenomenal recovery. Now Japan is discovering another result: a need to rebuild some of the old industrial concentration.

Last week, encouraged by the government, the two offspring of the old Japan Steel Co. -- Yawata Iron & Steel and Fuji Iron & Steel -- agreed to get to gether again. Their merger marked a long stride toward the formation of giant companies in all major industries in Japan.

No Complaints. On June 1, with the approval of Japan's rather toothless antitrust watchdog, the Fair Trade Commission, Fuji and Yawata will form the New Japan Steel Co., the world's second largest steel company after U.S. Steel Corp. Last year the two partners produced 25 million tons v. U.S. Steel's 32 million; they had sales of $2.5 billion. Under the presidency of Yoshihiro Inayama, now the chief of Yawata, the new company will employ 80,000 people in ten huge, highly integrated mills throughout Japan.

Already, modern basic oxygen furnaces produce about 73% of Japan's steel, compared with around 20% in the U.S. and 10% in Europe. The combine will create a large pool of capital resources for investment in still more up-to-date equipment. It will also be a formidable competitor in international markets. Last year Japan produced 74 million tons of crude steel--exceeded only by the U.S.'s 131 million tons and Russia's 118 million--and one-fifth of the output was exported.

Fuji and Yawata together account for 34% of Japan's burgeoning steel production. They have no complaints about complying with conditions imposed by the Fair Trade Commission, and have reduced their share of the market in heavy rails, tinplate and foundry iron, in which they would otherwise clearly hold a monopolistic position. Significantly, Japan's four other major steel firms showed no real opposition to the merger. "The other steel companies have become strong enough to withstand any kind of competition," explained Hosai Hyuga, president of Sumitomo Metal Industries. Indeed, some competitors are counting on the trend to concentration in steel to help bring an end to the wild price fluctuations that have kept profits at a low 2% to 3% in recent years.

Fierce Competition. Japanese steel men aim for a 15% gain in output and increased exports this year. Already, about one ton of steel in every 15 sold in the U.S. is made in Japan, and Washington's urging has brought a Japanese agreement to reduce exports to the U.S. by nearly onefourth. The slack will be taken up in other markets, notably in Southeast Asia and Europe, where competition is expected to be fierce.

The steel merger will also contribute to efficiency in the world's fastest growing national economy. Output has been leaping ahead by at least 12% annually. The Japanese have achieved that record not only because of their justly famed industriousness but because they have the world's highest rate of savings and capital investment and one of the world's lowest rates of taxation. Not least among the factors of Japanese success is the renaissance of the national philosophy that the bigger a company, the more competitive it can be in the rest of the world.

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