Cooperation, Competition and International Competitiveness: The Case of Japanese Central Office Switches

Abstract

This paper contains a detailed examination of Japanese digital central office switches (COS'S). This case study is used to analyse a number of broader issues. To begin with, the question of the optimal relationship between the telephone operating company and its telecommunications equipment suppliers is analysed. In Japan, until 1985 when Nippon Telegraph and Telephone (NTT) was partially privatised, COS's were jointly developed by NTT and four supplying companies, Fujitsu, Hitachi, NOC and Oki. This so-called relationship was long-term, stable, and relatively certain. As such the relationship departed significantly from a pure market relationship such as a tendering. What were the strengths and weaknesses of the Den Den relationship in the case of COS's? Secondly, the Den Den relationship represents an example of cooperation among competing companies. How effectively was this cooperation organised in view of the fact that the supplying companies competed vigorously outside the NTT market for COS's and therefore each firm had an incentive to prevent the leakage of knowledge to the other competing firms? Thirdly, the COS market represents a case of relative failure for the Japanese companies compared to their international success in other areas like semiconductors, consumer electronics, and other telecommunications equipment. How is this relative failure to be explained? These questions are analysed in detail in the present paper.