"New Americans" for Europe

In elegant London clubs, members complain that the best French clarets are being shipped overseas. In Paris salons, regular customers find that their favorite couturiers are giving strange foreign customers first peek at the latest styles. At the art and antique auctions all over Europe, as many as half of the choicest items are being bought by people who never showed their faces a few years ago. As the American tourist surge is beginning to level off, Europeans are bringing out their stale stories about rich Texans for a new breed of foreigners--the Japanese.

Increasingly ubiquitous, they are even freer spending than the Americans were in their heyday. At Dunhill, the sedate tobacconist in London, three winsome Japanese girls wait on the busloads of their countrymen who visit every day and walk away with the costliest pipes. (Americans usually buy the cheapest.) At the Pathek-Philippe factory in Geneva, Japanese queue up to buy watches for as much as $5,000 apiece.

While the 250,000 Japanese tourists in Europe this summer evoke mixed emotions, the invasion by Japanese merchants causes major concern. They have captured 28% of Italy's motorcycle market and 48% of its tape-recorder market. In West Germany, home of the Leica, half the cameras sold are Japanese. In the nine Common Market countries, the Japanese have cornered nearly three-quarters of the fast-growing sales of small electronic calculators. Sales of Japanese cars (368,000 units in Western Europe last year), steel, office machines and optical equipment are also rising considerably. Overall, Japanese exports to Western Europe jumped 35% last year. In only four years, the Common Market's trade deficit with Tokyo has grown from an almost invisible $16 million to a very visible and, to Europeans, a very irritating $1.3 billion. By contrast, the U.S.'s trade deficit with Japan is likely to decline from $4.1 billion last year to some $2.1 billion this year.

Like the Americans, the Japanese are buying and building factories all over Europe. One reason: international pressure on the Japanese to spread around their huge foreign currency reserves, which now stand at $15 billion. Though there are scarcely 20 Japanese-managed manufacturers in Europe, the number could well jump to 200 by 1980, and hundreds of thousands of Europeans may be working for Japanese managers. According to some Common Market estimates, Japanese direct investment, now $250 million, could rise to $8.3 billion by 1980.

Old slogans have been reversed, and European labor--not Japanese--suddenly seems fairly cheap. Manufacturing costs in Japan rose 19% last year and are likely to go up another 30% this year. This wage inflation at home, coupled with the upward revaluation of the yen, makes manufacturing operations in Europe much more profitable than sending Japanese goods halfway round the world. A second reason for direct investment is that if the European trade deficit with Japan grows much larger, the Common Market may simply clamp on quotas or demand so-called voluntary restraints to keep Japanese goods out. Already those restrictions on Japanese products are much stricter in Europe than in the U.S. Says Michel Carre, a Brussels management consultant: "The Japanese are welcome abroad as investors, but not as pushers of Japanese goods."

The Japanese business success in Europe, as elsewhere, is the result of careful, detailed planning and attention to what the consumer wants. For example, automaking Toyota began its marketing drive in 1961. Analysts from all departments were sent abroad to collect information on weather conditions, lifestyles, laws and regulations, income levels, road conditions, competition, driving habits and economic and political policies. To gain publicity and technical knowledge through competition with European cars, Toyota's export council ordered participation in international auto shows and rallies. Sales rose steadily--from 2,114 in 1964 to 59,019 in 1970 to 162,841 last year.

Gentler Pace. In Europe, West Germany is the biggest buyer of Japan's goods in general (almost $1 billion worth last year), but Britain is likely to be the chief beneficiary of Japanese in vestment. Japanese find English the easiest European language to learn, and they savor the English way of life. Says Mitsui's Sadao Oba, one of the more than 4,000 Japanese businessmen living in greater London: "I like the quiet very much. I like the gentler pace of life." English employees in Japanese firms often return the compliment (see box previous page).

Like the Americans, the Japanese are discovering that success does not necessarily make them popular. In Britain, a Gallup poll shows that 37% of those questioned regard Japan as "an unfriendly country." On the cover of Vision, a European business monthly, the Japanese businessman was depicted as a belligerent, muscle-flexing superman. German executives do not like it that Japanese salaries are generally 10% to 30% higher than their own. The Japanese politely retort that their success is merited because they work harder to sell to Europeans than Europeans do to sell to them.

Indeed, it would be unfortunate if the economic rivalry led to a round of imprecations and protectionism. As the Nixon Administration's difficulties with Europe amply attest, the American challenge never did lead to the political domination that the French forecast in the 1960s. Instead, the U.S. commercial migration has yielded some healthy dividends, including new management and marketing techniques. By aiming to sell to the quarter-billion people who constitute the Common Market, the hard-hustling Japanese are likely to have a bracing impact as well on Europe's business.

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