THE WALL STREET JOURNAL ARTICLE, 4 SEPTEMBER 1984

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00759R000100200041-0
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: May 6, 2010
• Sequence Number: 41
• Publication Date: September 4, 1984
• Content Type: MEMO

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THE DIRECTOR OF
CENTRAL INTELLIGENCE
National Intelligence Council
NIC #05064-84
4 September 1984
NOTE FOR: Director of Central Intelligence
VIA: Vice Chairman, National Intelligence
Council
FROM: Maurice C. Ernst
NIO for Economics
SUBJECT: The Wall Street Journal Article,
4 September 1984
Worth reading if you have not
already done so.
Attachment,
As stated
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UNCLASSIFIED
NIC #05064-84
4 September 1984
SUBJECT: The Wall Street Journal Article, 4 September 1984
DCI/NIC/NIO/Econ:M.Ernst:bha(4 Sept 84)
Dist:
Orig: DCI (w/att)
1 - DDCI (w/att)
1 - DCI/SA/IA (w/att)
1 - ER (w/o att)
1 - DDI Reg (w/o att)
1 - VC/NIC (w/att)
2 - NI0/Econ
UNCLASSIFIED
STAT
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THE WALL STREET J ' Ou t( um Y~ rted machines have
Tue A A L seized 42% of the i machine-tool-market,
y, Bober 4. 9rra up from 13% a decade ago, according to the
50 CENTS
The Cutting Edge
Making Machine Tools
Increasingly Requires
Ties to Foreign Firms
As Competition Warms Up,
U.S. Producers Get Parts
And Technology Abroad
A Glimpse Into the Future?
By Rar rH E. Wnffnt
Staff Reporter o/ Tar W,u.L STacrr Jouru+wt.
CINCINNATI-When Richard K. LeBlond
began making metalworking lathes here in
1887, he was intrigued with Japan, then a re-
mote place. Behind his new white factory
with red-brick trim, be built a little stone
pagoda and a reflecting pond.
Today, Daniel W. LeBlond, the chairman
of the company his grandfather started, is
even more involved with the Orient. In 1961,
a Japanese machine-tool producer, Makino
Muting Machine Ltd., bought a 51% stake,
and the LeBlond company now is called Le-
Blond Makino Machine Tool Co. LeBlond
Makino still makes lathes, but it also assem-
bles Makino?designed machining centers
that use many Japanese parts. In addition,
LeBlond Makino has a plant in Singapore
and this month will start selling highly auto-
mated lathes built by a West German con-
cern.
The affiliation with Makino, Mr. LeBlond
says, is providing "access to a tremendous
range of products that we would have no
I way in the world of developing ourselves, ei-
ther from a technology or financial stand-
point. '
International Flavor
Like LeBlond Makino, the entire ma-
chine-tool industry is becoming truly inter-
national. To an unusual degree, companies
buy, sell and share technology with scant at-
tention to national boundaries. At the huge
International Machine Tool Show in Chicago
ithis week, U.S. companies are displaying
many systems containing foreign-made ma-
chines with U.S.-made electronic controls.
And while the U.S. industry clamors for
import quotas, many producers expect little
help from Washington and have quietly de-
cided to link up with foreign competitors.
That group even includes HoudaWe Indus-
tries Inc., of Fort Lauderdale, Fla.; after an
unsuccessful two-year effort to get the Rea-
gan administration to deny investment tax
credits to buyers of Japanese machine tools,
Houdaille is negotiating with a Japanese
producer about a possible joint venture to
produce. machining centers for sale In the
.ti.
National Machine Tool Builders' Associa-
tion. In addition, Japanese, European and
Canadian companies make machines In the
U.S. Moreover, American machine-tool
makers aren't faring as well as they once
did in foreign markets, though they still ex-
port more than 10% of their U.S. output. And
some have foreign plants that compete in
overseas markets.
Small but Crucial
For many machines, says Edson I. Gay-
lord, the chairman and president of Inger-
soll Milling Machine Co. of Rockford, Ill.,
"whether the buyer is in the U.S.. Europe, a
Third World country or the Far East. the
same suppliers are In the lobby seeking the
order."
The U.S. machine-tool industry is rela-
tively small; even In a good year. its sales
seldom exceed $5 billion. But its evolution
into an international business is important.
Machine tools-machines that make ma-
chines-are used to shape most metal parts,
ranging from engine blocks to oil-well bits.
U.S. manufacturers of countless products
depend on machine-tool makers to supply
equipment that, they hope, will give them a
competitive edge in world markets. And
they will be seriously handicapped if foreign
manufacturers get superior technology
first.
The difficulties of American machine-tool
builders illustrate what other U.S. Industries
will face as international competition grows.
An Intense Japanese push into the machine-
tool export market hit the American pro-
ducers just before they also were clobbered
by the latest recession. Sales of U.S.-made
machine tools plunged 65%. and most pro-
ducers fell deeply into the red. I lie industry
is made up mainly of small companies, and
Please 7Wrx to Page LS, Cohmut 1
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1 IV V U L L111g r ' ge; ouccess in Ivlakl g Machine 't'ools
Increasingly Requires Foreign Parts and Technology
Continued From First Page .
about 25% of them went out of business, the
national association says.
Some big players want out, too. Allied
Corp. recently sold the machine-tool opera-
tions that it acquired when it bought Bendix
Corp., and Textron Inc. seems willing to sell
its machine-tool business. Some producers
have sold out to foreign companies, and oth-
ers are up for sale. -
Much optimism
The surviving companies think that the
industry will emerge lean but healthy if an-
other recession doesn't hit next year. "By
God, if we put our minds to it, we can do it,"
says Clifford R. Meyer, the president of Cin-
cinnati Milacron Inc., the leading U.S. pro-
ducer. However, sales of U.S.-made ma-
chine tools are still running at less than half
the 1980 level.
"A further shakeout" is predicted by
Frank W. Jones, the chief executive officer
of Giddings & Lewis Inc.. an Amca Interna-
e
and Malmo machining centers 17.5' of the U.S. market for the next five
assembled here will have half U.S. and half years. The association argues that imports
Japanese Pans and labor, Mr. LeBlond are jeopardizing an indust
see ti
l t
n
tional Corp. unit based in Fond du Lac, Wis. $95,000 per employee before the recession.
..The survivors," he adds, "will be the com- "Productivity of secretaries, salesmen,
Panies that can offer a technologically com- engineers and executives must improve,
petitive product, high quality, timely deliv- along with production workers',"
P ,e good Parts and service, and competitive Jones of Giddings & Lewis. His Y.e siMr.
good Is
To do that, U.S. machine-tool makers are investing in computer-aided design, compu-
terized management-information
spending heavily-on lasers, computer soft- word processors and a $3 Million automated
ware and other advanced technology to leap- warehouse, in addition to new machines in
frog overseas competitors. For instance, its factories.
Acme-Cleveland Corp. recently shipped to Like many other U.S. industries, Ameri-
General Electric Co.'s aircraft-engine plant can machine-tool makers dominated world
near Cincinnati a machining center that cuts markets for two decades following - World
with a laser instead of rotating metal War 11. German and Ja
blades, panese plants were
U.S. companies are pushing especially in ruins, and U.S. technology was far ahead
of the rest of the world's. to develop computer-controlled groups 's. U.S. machine-tool
r
of machines that can automatically produce exports years ago were more than four
a number of different parts. Such a flexible Imports. And the machines that were
d
manufacturing system (FMS), which often cheap, were mainly very special-purpose simple and
ma-
includes robots to load machines and re- chines , from they Europwere e pe that t didn't t affect ma-
move finished parts, will be central to the p drt the
"factory of the future" because its versatil- principal markets.
Ity permits users to cut inventories of mate- ports ts Sir 19ve been mo been mo, than and finished parts. Less sophisticated, ports. Japanese producers, particular, x,
lower-cost groupings called manufacturing are pouring equipment into the U.S. cells will do the job for companies that can't ~~ rs Co~l opened bids
afford a $5 million to $20 million FMS. for 21
sophisticated
ros worth well
While fighting off foreign rivals, U.S. ma- over $100 million, Japanese ep a
chine-tool makers also are reaching out for low bidders on all of them. To retain To retn were
suplthem. ain four or-
foreign technology. Most import low-cost der sources of supply, on
go
parts and some complete machines, and ders GM r placed
. of Chicago
some have entered licensing agreements to and w two with with th German s, Cut the
assemble and market foreign-designed ma- ~ two Danly erman Machine Corp.
produocers. but the
Japanese got most of the order.
chines. Some are licensing a foreign pro-
ducer to make U.S.-designed machines, and Seeking Protection
then they import some of the equipment into Like manufacturers of hundreds of other
this country. products ranging from bicycles to steel, U.S.
Within a year, for example, LeBlond Ma- machine-tool builders want government pro-
kino won't sell any U.S., Japanese or Ger- tection. Their national association is seeking
man machines. All will be "mongrels." quotas that would limit foreign producers to
Th L
BI
ry
a
o
ns-
says. The German
-designed lathes Vvlll be tional defense. So far, the Reagan adminis-
put together here, using some locally made tration hasn't ruled on the petition, but some
bulky parts and electronic controls. The companies concede that they don't expect
original LeBlond lathes will have more for- much help. .
eign-made parts. The Singapore plant is As with some other American industries,
making lathes desigdbd by LeBlond here but there is debate about how much of the ma-
containing parts made in the U.S., Japan chine-tool makers' problems arise from fail-
and Si
ngapore It also is making ure totithh
. a new, say up w te latest technology. A
small machining center designed in Japan 1983 study by the National Research Council
by Makino and containing Japanese parts. said: "The American industry is beginning
To try to deal with a serious price gap to lag behind in technological leadership to
between U.S. and Japanese machines, U.S. the Japanese and West German industries,
producers are slashing costs-unlike their particularly in the area of machine software
approach in the 1970s, when their first re- and control units. American machine-tool
sponse to rising costs often. was to increase builders are significantly behind in the or-
prices. Huge old factories in big cities are ganization and technology utilized in their
closing; they are being-replaced by smaller, Production processes."
more efficient plants in smaller cities, Industry executives deny that their ma-
where wages are lower. chines are behind the times. In fact, says
Productivity Drive. Cross & Trecker's Mr. Lindgren, "technol-
ogy Is really moving from the U.S. to Japan
Corp., of Bloomfield rather than vice versa."
Hills, Mich., cut hourly labor costs 40% However, even industry executives con-
when it moved some production to George- cede that U.S. producers have lost the long
town, Ky., from Milwaukee. As a bonus, the technological lead that previously allowed
computer-controlled equipment in the new them to sell machine tools around the world
plant increased productivity 40%., says Rich- at prices far higher than those of foreign
and T. Lindgren, the chief executive. The competitors. And some agree with the coup-
company's goal, he adds, is annual sales of cil's allegation that U.S. producers aren't
$200,000 per emDlovee. un fmm a roar of An4,,s e- -11 __
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their own plants the best production equip-
ment and methods.
One answer is to tap that efficient Japa-
nese industry. Cross & Trecker recently
launched what Mr. Lindgren calls "the bet-
ter-best marketing strategy." He says,
"There probably isn't any way a North
American producer is going to be able to
compete with the Japanese on the basis of
price." Therefore, on Sept. 12, the company
will introduce a machining center made by
a Japanese producer but fitted with Cross &
Trecker controls, "the first in a complete
line to be made in Japan," he says. Low-
priced lathes already are being produced by
a Japanese company 50%-owned by Cross &
Trecker. Cross & Trecker will continue to of-
fer its U.S.-made machines, which cost
about 30% more but cut metal faster and
have more sophisticated oontrols, Mr. Lind-
gren says.
"The opportunity to offer a choice will in-
crease our credibility with the customer,"
and will help to sell U.S.-made machines,
Mr. Lindgren says. "If you don't have the
low-price merchandise on your wagon, the
customer always thinks you are trying to
sell him up to get him into your merchan-
dise."
Other companies say they are holding off
until they see whether import quotas are im-
posed. If the petition is denied, they also will
import more machines, often from licensees
or jointly owned companies.
Cincinnati Milacron is counting heavily
on technology. For instance, the company is including some of the robots that handle ma-
substituting a new synthetic material called terials and parts. But U.S. companies expect
epoxy granite to replace some large cast- to do the engineering, supply the controls
iron parts on its grinding machines. The ma- and build many of the machine tools. Mr.
terial is superior because it vibrates less Meyer W30 expects good service business
and thus allows more precise grinding, Mr. because manufacturers won't risk having a
Meyer says. "And we can pour it today and $20 million FMS break down.
have it on the assembly line tomorrow," he So far, however, the FMS market is less
adds. With iron castings, he explains, at than 10% of the machine-tool business. And
least 16 weeks elapse between the time of the systems won't help U.S. companies as
order and use; so, the new material greatly much in the other side of international com-
reduces inventory. petition-selling in foreign markets.
Leading machine-tool makers say their There aren't any simple answers to that
fortunes will improve as more manufac- problem. EX-Cell-O Corp., of Troy, Mich.,
turers start buying flexible manufacturing says it can export only the most sophisti-
systems. "With those systems, the design cated machines. The company is counting
engineer and manufacturing engineer of the mainly on licensing agreements and its Ger.
customer and the machine-tool-company man subsidiary to reach foreign markets.
sales engineer have to be in bed together," Ex-Cell-O has licensees in Brazil, India,
Cross & Trecker's Mr. Lindgren says. Prod- Spain and other countries. It recently signed
ucts have to be designed carefully for efM- licensing agreements in china and is looking
cient production with an FMS, he says, and at possibilities in Singapore, South Korea
the system must be tailored for the prod- and other countries.
ucts. "Then, as often happens, product de- Cross & Trecker has another plan. "The
signs are changed right up to the time of in- Japanese machine-tool industry is building
troduction, and the FMS has to be mods- capacity to satisfy 150% of world require-
fled," he adds. All that will be difficult for ments for machine tools," Mr. Lindgren
the Japanese, he says, mostly because of says. When the next downturn comes, be
distance and language problems. adds, "a number of those outfits will go
Most systems probably will contain for- through the proverbial wringer." He hopes
eign-made machines, however, very likely to buy a Japanese company cheap.
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