NEC and GTE Team Neptune Spring 2008 “Core Competencies at NEC and GTE”

Group members X Y Z W

Agenda History of NEC History of GTE Analysis Conclusions New Challenges

NEC and GTE History until 1980 NEC (Nippon Electric Corporation) lead by Kunihiko Iwardare as a joint venture with western investment NEC first products were telephone lines and equipment made with western technology By 1926,NEC started to manufacture its own systems and products By 1930 company’s sales 40% by Japanese military, but by 1945 increased to 97% After WWII, NEC took advantages of post- war rebuilding and created a new era in NEC’s operations 1947 development of the transistor provided the forerunner of modern semiconductors By 1950, the company began to expand internationally to Asia In 1977, CEO Kobayashi believed that the integration of computer and communication was inevitable (Internet?) His vision became “C&C” Computers and Communications GTE as General Telephone started by three entrepreneurs, John O’Connell, Sigrid Odergard and John Pratt Rapid growth in the early post WWII due to the US demand for telephone services Initial line of business was local telephone services, but later expanded to produce telephone directories and communications equipment manufacturing and operations 1959 merger with Sylvania and the name became GTE (General Telephone & Electronics Corporation The merger created a diversified electronics and communications group In the 1960s and 1970s the merger marked a period of big expansion By 1970, GTE consolidated and reorganized its management The GTE Products Group was formed to bring worldwide manufacturing and marketing under a single entity

NEC and GTE History 1980 to 2000 NEC constituted a C&C committee to oversee the development of core products and core competencies By 1980 NEC consumer electronics products were exported throughout the world By 1984 NEC foreign sales peaked to the 35% of total sales and declined to 25% by 1989 In the 1990s, NEC was one of the most admired corporations, but soon faced new challenges The Japanese economy and the banking crisis hidden during the prior decade growth helped to face those new challenges NEC lost its status as the world’s largest semiconductor maker to Intel By 1998, NEC had slipped to third place in memory chips behind Samsung Electronic Company and Hyundai Electronics Industries In 1999, NEC decentralized its operations and returned to separate business unit model The AT&T settlement left GTE as the only company in the US with its own manufacturing arm GTE decided to realign its business portfolio, it will focus on three “core” business: telecommunications, lighting and precision materials GTE acquired a long distance telephone services company and began offering mobile phone service and developing satellite communications services in 1984 By 1989, GTE was the first cellular phone provider to offer service nationally in the US At the end of the 80s GTE was in the midst of restructuring into six operating groups Telephone Operations, Electrical Products, Government System, Information Services, Mobile Communications and Spacenet GTE developed substantially in the 1990s Merger with Contel Corporation and acquisitions of additional cellular properties In the 90s, GTE focused on new enhanced communications business

Analysis What went wrong at NEC?  Japanese economic crisis  Competition from government subsidized Asian companies  Competition from specialist companies  Loss of domestic Japanese PC market to American companies  Defense procurement scandal  By focusing on core technologies, NEC insulated itself from market conditions What went right for GTE?  Deregulation of US Telecommunications Industry  Investing in emerging markets  Core business strategy  Core business model leads to economy of scope which cannot be reproduced with the core competency model

Conclusions Core Competency approach sounds good,and may be more efficient than SBUs of large diversified corporation, but in practice loses out to core business model in its ability to create economies of scale in a commoditized business.

New Challenges to NEC for The New Millennium 2000 – NEC and Mitsubishi Electric joint venture to create U.S. based display monitor company 2001 – NEC announced a new global corporate statement “Empowered by Innovation” 2002 – NEC announced semiconductors business will be separated to become a new company “NEC Electronic Corporation” 2003 – NEC establishes LCD technologies and customized products 2004 – NEC and Hitachi established a joint venture specialized in backbone Ronter/switches 2005 – NEC establishes outsourcing company for mobile network in Honk Kong 2006 – NEC and Sony made a joint venture in the optical disc and drive business

New Challenges to GTE for The New Millennium In 2000, GTE and Bell Atlantic created a merger that is well know as Verizon Verizon is actually the second largest wireless telecommunications network after AT&T and Cingular merger in 2005

THE END Thank you very much Anyone has a question?