A Japanese Rebel Wins the Respect of Establishment : Innovation: Kazuo Inamori fought the odds with ceramics maker Kyocera. Now the company is held up as a model for the qualities Japan may need in the Information Age.

KYOTO, Japan —  At 58, Kazuo Inamori stands at the pinnacle of success in Japan’s business world. As founder of Kyocera Corp., Inamori pioneered high-tech ceramics, shepherded the firm to leadership in that market and secured a reputation as one of Japan’s visionary leaders.

But he did it as an outsider, with his nose pressed against the window of Japan’s best schools, companies and business networks.

Inamori’s story of rags to riches is as American as Horatio Alger. He contracted tuberculosis at 13. He lost his home and family factory to wartime air raids. Initially, other Japanese firms refused to buy his ceramics. But he persisted, traveling to the United States in 1967 and convincing semiconductor maker Texas Instruments to give him orders for the Apollo space project. It was his first big break.

Now Inamori’s pioneering spirit is winning public admiration in Japan. As the nation strives to foster the creative, free-thinking researchers needed for the Information Age, it is turning for lessons to this maverick maker of ceramic microchip housings. Last year, in a survey of 15,000 Japanese executives by the influential Japan Economic Journal, Kyocera was named the company with the greatest potential in the 21st century. In two Nikkei Business surveys since 1983, Inamori was named Japan’s most effective manager.

“Even today, our venture spirit continues, and people look at Kyocera as innovative and creative,” said Inamori, projecting charisma during an hour-long interview. But, he added, “It would be wrong to think we are now in the mainstream. The majority of people are still going in a different direction.”

From the start, Inamori has tried to imbue Kyocera with his own innovative spirit. He was just a 27-year-old ceramics engineer when he quit his job to start his own company in 1959. He raised $40,000 from private investors, becoming one of Japan’s first start-ups funded by venture capital. The risk--and challenge--were clear.

“I figured with such a small company, the only way to get major clients was to do something out of the ordinary, to develop products nobody was able to make or supply,” the Kyocera chairman said.

The products are a high-tech twist on the 6,000-year-old art form of ceramics. Like potters centuries before them, Kyocera workers mix clay from alumina, silicon and other materials found in almost limitless supply in the earth’s crust. But the finished products are leaps beyond pots and vases.

Imagine 4-inch-square ceramic sheets etched with the circuitry to house the brains of a jet control system. “Bioceramic” bones and teeth the body won’t reject. Ceramic engines so impervious to heat that they recently test-ran the equivalent of Los Angeles to Boston at 100 miles per hour--nonstop. The high-tech know-how comprises 70% of the product cost, the ceramic powder only 5%.

Kyocera is also busily transforming itself. Three years ago, the mercurial Inamori decided his company was getting too big and sluggish. So he spun off his 11 North American divisions from the parent company’s subsidiary, Kyocera International Inc. The divisions were told to “create your own vision,” said Rodney Lanthorne, KII president.

Last year, Inamori answered critics who dismissed Kyocera as a one-product company little known outside Japan. With the acquisitions of U.S. electrical component makers Elco Corp. and AVX Corp., the $2.5-billion firm added $600 million in sales and 21 plants in Europe, Southeast Asia and the United States.

Kyocera’s new long-distance telephone company is booming, popularized by novel adapters that automatically route calls to the cheapest line. It is leading research efforts into new ceramic materials that transmit electricity with no resistance, a phenomenon called superconductivity that could sharply reduce energy bills and pack supercomputing power into a laptop machine. On the horizon are a filmless camera and a solar-powered car.

“They don’t always go into businesses that are immediately profitable, and that has bothered some people,” said Matt Aizawa, vice president of Merrill Lynch Research International in Tokyo. “But it is an extremely entrepreneurial company willing to take risks with related businesses that are promising.”

Beyond innovative products, Inamori also created a new management technique: the “amoeba.”

Like the one-celled animal, the Kyocera “amoeba” is meant to be a self-sufficient operating unit. Amoebas may be organized around a product or production process and range from a few people to hundreds. They are given considerable independence to manage their own operations in an effort to instill the entrepreneurship and “marvelous sense of cost-consciousness” characteristic of small businesses, Inamori said.

Analysts credit the amoebas with helping Kyocera turn in one of Japan’s strongest corporate financial performances. Its return on equity is 6.9%, compared to the Japanese average of less than 4%. Its ratio of pretax earnings to sales is 20%, more than three times the Japanese average of 6%, said Masahiko Goto of New Japan Securities in New York.

Like many self-made business people, Inamori is eager to impart his philosophy of success. Detractors in Japan sneeringly call it “Inamori Kyo” or Inamori Scriptures. A collection of his speeches and writings has just been published. The firm once employed a “company missionary” to spread the good word.

A seeming mixture of Zen Buddhism and Norman Vincent Peale, the creed stresses maximum effort, self-sacrifice and the power of positive thinking. Inamori’s ideas often find expression in simple maxims. His writings include sections entitled: “Make Goals That Continue Limitlessly Into the Future,” “Strong Desire Must Penetrate Deep Into Our Subconscious Mind,” and “Be Conscious of a Higher Purpose.” The rewards envisioned are more spiritual than financial.

In practice, the philosophy means individual freedom for maximum creativity in the lab, but disciplined teamwork for quality products in the factory. An esprit de corps, which Inamori calls “a bond of human minds,” is constantly encouraged.

A culture of total devotion and discipline isn’t as strong in Kyocera units in the United States as it is in Japan, where employees salute their factory leader and run to their offices from their morning meetings in a company yard. In Kyocera’s San Diego plant, which manufactures multilayer ceramic packages and other products, employees are encouraged to bond through twice-weekly 7 a.m. meetings. The meetings include pep talks, company news and morning stretches.

Everyone--including Kyocera America President Kiyohide Shirai--wears company blue jackets. Inside, walls have been knocked down and partitions removed. Almost everyone, from executives to clerical staff, sit together in long rooms. Company lawyers are the few employees with private offices.

Not all workers share the zeal, however. A recent Japanese news article reported that more people were leaving Kyocera because of too much overtime. In addition, the Japanese offices are having a more difficult time attracting recruits, said William Everitt, vice president of communications in San Diego.

Kyocera has had other problems. The firm folded its line of audio equipment 18 months ago after years of losses. Although the products were an “audiophile’s dream,” Everitt said, there wasn’t much demand for $3,000 ceramic turntables and other high-end stereo equipment.

Kyocera is struggling with its optics group seven years after acquiring ailing Yashica Corp. Last year, it reported an operating loss of $11 million. Its Samurai camera, an innovative vertical model that fits two pictures on one frame, won awards when introduced two years ago. But sales have not taken off.

Those difficulties underscore what many regard as Kyocera’s greatest failing. It may make innovative products, but not enough people hear about them.

In the past, mass marketing and distribution weren’t particularly necessary. The company’s core business, computer chip packages, is tailored to individual customers. Many of its other products are made for private labels. For instance, Kyocera built the world’s first mass-produced portable computer, but you’d never know it. It was marketed as a Tandy Radio Shack.

“We have the technology, but our weakness is bringing it to market,” Lanthorne said. “You have to be patient. Kyocera is not a household name.”

Despite continued losses, the firm has managed to parlay the Yashica optical and precision technology into laser printers, copying machines, microscopes and scanners. It has grabbed 50% of the European market for laser printers.

Kyocera’s acquisition of AVX and Elco has been widely hailed. AVX is a $409-million-a-year producer of tiny storage batteries called ceramic capacitors, while Elco sells $152 million worth of electrical connectors a year. Together, they give Kyocera a firm foothold in the components market, distribution prowess and eight new plants in Europe, one in Southeast Asia and 12 in the United States.

The acquisitions also helped Kyocera broaden its product base, insulating it from the swings of the semiconductor industry.

The biggest triumph, though, is Kyocera’s entry into Japan’s telecommunications market. Just as deregulation of the U.S. telephone business opened the door to MCI and other long-distance competitors, deregulation of Japan’s telecommunications market in 1985 led to the establishment of four new long-distance carriers. Kyocera is the largest shareholder--with a 25% stake--in the Daini Denden telephone company. In just five years, Daini Denden has sprinted to lead the pack in long-distance revenue and earnings. Its strategy: Target the profitable Tokyo-Osaka corridor and use microwave systems, considerably cheaper than fiber-optic lines.

Daini Denden has also been awarded cellular telephone franchises covering half the Japanese population. As a result, Merrill Lynch’s Aizawa predicts that telecommunications could eventually become the company’s largest source of earnings.

The market has applauded the moves. Kyocera’s share price has risen 56% since last November.

Lanthorne said the firm also expects payoffs from its ventures into solar power systems and the medical market. Kyocera has produced the market’s most efficient solar-powered battery; a prototype solar car capable of traveling 100 miles a day, depending on the sunlight, and solar power stations that are bringing running water and electricity to remote villages in Pakistan and other developing countries.

“After apparently futile diversification efforts, some benefits are actually starting to come through,” said Alan Bell, deputy head of research for Baring Securities Japan Ltd. in Tokyo. “They’ve been through hard times, but they’ve worked through them.”

Inamori developed that survivalist spirit in his hometown of Kagoshima on the island of Kyushu--a place known for its feisty people.

Kazuyoshi Kamioshi, a scholar and specialist on modern Japanese leaders, said Kyushu is renowned for what “must be the best fighters in Japan.” During the early 1600s, in the Tokugawa period, they led a two-year resistance against persecution of Christians. During the Meiji Restoration, in the late 1800s, local hero Takamori Saigo led Kyushu natives in a major rebellion against government policies.

Inamori’s grandfather peddled ice treats, but his father ran a profitable printing business. In 1945, however, U.S. air attacks destroyed the Inamori home and factory and threw the family back into poverty. That same year, at 13, Inamori contracted tuberculosis, then considered a “death disease.”

After recuperating, Inamori decided he wanted to be a pharmacist, but failed Osaka University’s medical school exam. He wanted to work for a big company, but his alma mater--Kagoshima Prefectural University--wasn’t prestigious enough for the status-conscious giants. He was rejected for job after job.

Finally, he went to work for Shofu Industries Ltd., a maker of high-voltage insulators. When the firm decided not to start a ceramics division, Inamori launched Kyocera with seven colleagues.

U.S. companies accepted his products more readily than the tightly knit Japanese business world. That first order from Texas Instruments in the late 1960s for electrical resister rods led to orders from General Electric and Westinghouse--and they helped establish his credibility in Japan. Eventually, Kyocera commanded 64% of the world market in its core business of ceramic microchip packages.

“It is easier to break into the U.S. market,” Inamori said. “The Japanese have the nationalism that values traditions and history. On the other hand, the Americans admire good quality and accept the superior technology and products without persisting in the past.”

Inamori said there are deep-rooted historical reasons why Japanese society has not engendered the kinds of individual freedom and leaps of intuition that produce creative breakthroughs. In a rice-growing culture, he said, group effort is critical. Taking risks with cultivation could spell starvation for an entire village, he said, instilling a reluctance to gamble that persists today.

Furthermore, he said, Japan’s culture of craftsmanship, based on an apprenticeship system, teaches the art of copying. Whether wood-carving, flower arrangement or tea ceremony, the “first thing is to be humble enough to copy and master exactly what the teacher is doing,” Inamori said. Only after you master the art can you become an innovator.

“There are just as many creative Japanese as Americans. The problem is when people have an inspiration in one society, the people can freely speak out. In the other, that idea is suppressed,” Inamori said. “In Japan, if someone comes up with an idea that is not traditional thinking, people tend to say that person does not have his feet on the ground.

“That social environment has to change before there can be personal creativity in Japan.”