The JDIB is "dominated by twelve companies that account for approximately 95 percent of the JDA's acquisition budget." [Ref. 41 p. 2]. These twelve companies (and their primary defense-related emphasis) are listed in Table 1 below:
Defense Company Name Primary Defense-Related Emphasis
Mitsubishi Heavy Industries, Ltd. (MHI) Ships, military vehicles, aircraft*, and missiles
Kawasaki Heavy Industries, Ltd. Ships and aircraft (primarily helicopters) Ishikawajima-Harima Heavy Industries, Co.,
Ltd.
Ships and engines
Mitsubishi Electric Corporation Electronics and Missiles
Toshiba Corporation Electronics and Missiles
NEC Corporation Electronics
Fuji Heavy Industries, Ltd. Aircraft The Japan Steel Works, Ltd. Artillery
Komatsu, Ltd. Small arms/ordnance and military
vehicles
Hitachi, Ltd. Electronics and military vehicles
Oki Electric Industry Co., Ltd. Electronics
Daikin Industries, Ltd. Small arms/ordnance Table 1. Twelve Leading Japanese Defense Companies
[From: Ref. 41 p. 2]
*MHI is Japan's sole producer of fixed- wing fighter aircraft
The defense industry only accounts for about 0.6% of Japan's domestic production. Although this is a small percentage, it still amounted to an R&D and procurement budget of about $10 billion in JFY 1999 (April 1999-March 2000). In concert with these twelve companies, the JDA normally procures defense items through one of the following five sources: "(1) domestic development, (2) co-development with the United States, (3), Licensed Production, (4) Commercial Imports, and (5) Foreign Military Sales. The twelve companies are heavily involved in licensed production
particularly, with U.S. firms" [Ibid p. 1]. It is noteworthy that a significant portion of the ($10 billon) R&D and procurement budget is:
devoted to only four very expensive programs: the Multiple Launch Rocket System (MLRS), the AWACS airborne early warning system, the Mitsubishi/Lockheed Martin F-2 air superiority fighter aircraft (formerly called the FSX), and the AEGIS guided missile cruiser. All of these are being either license-produced, imported, or jointly developed with the United States. [Ibid pp. 1-2].
The limited composition and constrained nature of the JDIB has significant ramifications for its current status and portends change in the near future if the Japanese government wants to maintain a relatively robust and diverse defense industrial capability.
2. Status
The JDIB faces consistently declining defense budgets and a constrained market structure (as described earlier). The general attitude among the major defense companies is that the JDIB must simply try to survive this fiscally austere period. As a result of this survivalist mentality, the JDIB consistently supports Japanese government initiatives to
"rationalize the domestic arms industry.” [Ref. 6 p. 392]. "Rationalize" has become "a code word for providing more subsidies to maintain excess capacity until the present dearth of new orders passes (whenever that day arrives)." [Ibid p. 392]. A subsidized defense market may not be the most economical solution for the JDIB and DoD might facilitate implementation of some incentives to reduce Japanese government subsidies by encouraging corporate partnerships with U.S. defense firms.
The United States is viewed as the most likely market for sales of Japanese defense products, primarily due to the constitutional exception to arms exports discussed earlier. The effort to sell defense products to the U.S. has been warmly received by DoD:
At a higher level within the Defense Department, officials are examining long-term options that range from expanded use of contract research programs to joint production of common components and even expanded purchases of Japanese components to further the objectives of gaining access to Japanese technologies, maintaining common systems, and controlling weapon systems costs. It is not an exaggeration to assert that DoD is more committed to mutually beneficial relationship. Most of these initiatives include some measure of government activism and support.
Defense officials in the United States, however, seek an environment in
which company-to-company interactions will increasingly define technology opportunities for the two countries. [Ibid p. 392].
This initiative by DoD has received a lukewarm response from the JDIB. Most
"defense producers seem more interested in new production programs that will increase orders than in research programs involving possible cost/risk sharing and long term horizons lacking any guarantees of moving into production." [Ibid p. 392]. This lukewarm response may be the result of DoD not properly structuring incentives for companies in both countries. The nature and structure of defense production incentives is examined in the next chapter.
The JDIB has undertaken internal measures to improve defense productivity and achieving best value defense procurement solutions. The industry is moving unilaterally (vis-à-vis the Japanese government) to minimize risks and cut costs. "A few major firms have consolidated their defense divisions into new, jointly-owned ventures to reduce costs and minimize risks associated with remaining active in declining markets" [Ibid p.
388]. For example, Ishikawajima-Harima Heavy Industries and Sumitomo Heavy Industries established "equal partnership in an engineering firm to handle research and development, design and life-cycle support for naval vessels" [Ibid p. 388]. This effort will only have a limited effect, however, in that it is actually a reorganization and downsizing of the excess capacity that was present in the market. While potentially effective, these measures will not eliminate the continued need for foreign defense products.
Historically, over 50 percent of Japanese defense imports will come from the United States. However, the Japanese government imports defense items in other markers. Japan sometimes conducts defense acquisition with suppliers in the European Union (E.U.). An example of this effort is the joint venture between "French-German manufacturer Eurocopter and Kawasaki Heavy Industries of the EC-145/BK-117 multi-use helicopter." [Ref. 15 p. 1]. This highly-successful helicopter project launched its second version in 2001 with a "pre-production order quantity of 40 aircraft." [Ibid p. 1].
Japan’s willingness to use E.U. sources for defense contracts creates the potential for the United States and Japan to become competitors in the European defense market. A
competitive European defense market creates a new dynamic in defense procurement for both the United States and Japan that may enable creation of strategic threats and strategic opportunities for the JDIB.
In summary, the JDIB is a relatively small industry that counts upon government subsidies and domestic defense production to maintain both capacity and capability.
Defense-related production is seen as a low-profit/no-profit venture and is not considered a major factor in most firms' revenue streams. The "Three Principles on Arms Export"
still effectively exist, but are often favorably interpreted for U.S.-related defense projects.
The United States is given preferential treatment as a supplier and customer in the Japanese defense market (although some items are purchased or co-produced with EU member nations) and licensed production of U.S. defense items is viewed as an acceptable substitute when domestic production is not possible. The Cooperative Research Effort, the ASCA, and post-September 11th legislation are all prime indicators that Japan and its defense industry are willing to pursue cooperative efforts in the area of defense production. A key element of any cooperative effort is interface with the USDIB. The USDIB shares some similarities with the JDIB and an overview of the USDIB provides a comparative reference. This overview is undertaken in the next section.