The Founding Prospectus

Founder Masaru Ibuka drew up the Founding Prospectus of Tokyo Telecommunications Engineering Corporation in January 1946.
It is still handed down as the origin of the Sony Group.

he following is the Founding Prospectus of Tokyo Telecommunications Engineering Corporation that Mr. Ibuka drew up in 1946. (Tokyo Telecommunications Engineering Corporation) Established on May 7, 1946

During the war, I worked at Japan Precision Instrument Co. with a number of engineers testing and producing new military equipment. We worked so hard that we literally forgot to sleep or eat. After the war and dissolution of the company, about 20 of these dedicated and truly worthy engineers joined me to start Tokyo Tsushin Kenkyujo (Tokyo Telecommunications Laboratory), for the development and production of communications equipment.The first and primary motive for setting up this company was to create a stable work environment where engineers who had a deep and profound appreciation for technology could realize their societal mission and work to their heart's content.During the war, though we were subjected to some of the poorest conditions, we tried hard to fulfill our mission. I experienced how passion together with capabilities can be driven by a profound and fascinating mission. On the other hand, I also realized what could weaken these intense motivations.Thus I began to conceive of ways for these motivated individuals to be united on a personal level, to embrace a firm cooperative spirit and unleash their technological capacities without any reserve. If this could be accomplished, the organization would bring untold pleasure and tremendous results, regardless of the meagerness of its facilities or the limited number of employees. The end of the war brought us closer to realize this dream.Not just anyone, but those with similar resolve have naturally come together to embark on this new mission with the rebirth of Japan after the war. We felt no need to discuss how to prepare ourselves for such an embankment. Based on a common understanding we had developed over time, our ship sailed off naturally.With scarce testing equipment and parts obtained from Japan Precision Instrument and capital the size of an allowance, we drew up a plan to somehow make our way through. We believed that our high aspirations and confidence coupled with our unity and technological know-how would break through any rough waves, despite the small size of our operations. Further, we began on a small scale because we were unable to foresee societal circumstances during a period when our country was facing a turning point. In addition, we realized that it would take some time for our work to be recognized and valued by the society.

Ibuka's First Visit to the United States

"Can this be put to practical use?" "No, I don't think a thing like this will ever do." Masaru Ibuka and Kazuo Iwama were having a lively discussion about an article in an American magazine. The article reported on the invention of the transistor at Bell Laboratories in the United States. A short explanation was given along with a picture of a contact-point transistor. "By setting a couple of tungsten needles in a germanium crystal," the explanation began."It has no future," Ibuka concluded as he read through the article, remembering the crystal detector which he had initially used in his ham radio. The crystal detector would detect radio waves with a metal needle set in a galenic zinc crystal. The radio could be heard by connecting a receiver to this device. It resembled the transistor, but could hardly be called a sophisticated machine. The needle would be easily displaced if someone nearby sneezed or moved even slightly, and thus would have to be reset each time it was displaced. This required delicate and troublesome tuning. Based on his experience, Ibuka assumed that the transistor would have little use.In March 1952, Ibuka decided to visit the United States for a three-month inspection tour. At that time, tape recorder sales in Japan were limited to the educational market, centering around schools. Ibuka keenly wanted to widen this market -- he hoped to see for himself how American consumers used tape recorders. And if possible, he wanted to observe how tape recorders were manufactured by American companies on their assembly lines.As Ibuka boarded the Northwest DC-6 jetliner at Haneda Airport after a send-off by his family and colleagues, he felt a little bit nervous. This was his first trip abroad and he could not communicate well in English.

An End to Reliance on Foreign Products

Transistor radios were not the only Sony line catching on. Various products were doing well in the company's original field of audio equipment.One of these was Japan's first condenser microphone, the C-37, which would eventually stand out as a leading example of world-class Japanese technology.Ever since he began working on stereo recording microphones, Nakatsuru had promised himself that one day he would make a condenser microphone himself.In those days, condenser microphones were exclusively foreign-made, and audio experts (such as filmmakers and NHK's sound engineers) swore by foreign brands and would not look at any local product. This was understandable, for Japan has very hot and humid summers, and the accepted verdict was that no condenser microphone made under these conditions would function properly. It would give out nothing but noise and be utterly useless.Nakatsuru exclaimed,"This is nonsense. If no one else will make a local product that works, then it is up to Sony." Knowing he faced a tough task, he went to work.The immediate impetus came from Heitaro Nakajima of the NHK Science and Technical Research Laboratories. At the time, Nakajima's laboratory was also working on a prototype. This, the very first condenser microphone built in Japan, had a celluloid diaphragm silver-plated on one side. Unfortunately, however, it was prone to emitting noise and when the voltage was too high the celluloid would burst into flames. Thus the project was discontinued.Nakatsuru learned from Nakajima and by studying German microphones.Though less spectacular than US models, the German ones generally gave the impression of being solidly built, something that appealed to Nakatsuru.The first problem was the diaphragm. Nakatsuru tried all kinds of materials without success. Then a DuPont product, a polyester material called "Mylar," was imported. He thought this looked feasible, but he had no idea how he was going to apply the pole plate to the Mylar. He finally hit upon the idea of applying gold, but could not see how it could be done. It was Ibuka who put him on the right track. 

Sony Corporation of America

Sony's decision to shift focus from the domestic to the international market took seed during Morita's 1953 visit to Philips. "Holland resembles Japan in many ways. If a company like Philips can succeed in the international market, there's no reason why Totsuko can't," he thought. Boosted by this convicton, he directed Sony to begin concentrating its energies on producing exports for the international market.Their initial goal was to build up overseas markets which would yield 50% of their gross sales. Thanks to sales of transistor radios and the diligent marketing efforts of Morita and his staff, this goal became possible within seven years.Next came step two. Morita took an assertive stand. "Until now we have merely exported overseas. From now on, however, we must go to the heart of the matter. Overseas marketing is an overseas business. I believe that Sony can become stronger by setting up overseas offices." Offices had already been set up in New York, Hong Kong and Zurich for this purpose. A radio factory had also been established in Shannon, Ireland.Then in February 1960, Sony Corporation of America (SONAM) was established to oversee Sony's marketing activities in the United States by "doing business with Americans like an American company." This was something that no other Japanese electronics corporation had dared to attempt. Many doubted that a company specializing in transistor radios and other electronics products, as opposed to a general trading company, could deal successfully without an agent's assistance.Morita was well aware of the risks. "In light of Sony's current situation, we may be acting a little prematurely. But a business that doesn't take advantage of its opportunities doesn't deserve to be called an enterprise. We may be overextending ourselves, but the time to act is now. We at Sony don't believe in shying away from the hardship that comes along with a good opportunity, and we ask all our employees to uphold this spirit," explained Morita to his employees.

The Road to Direct Financing

one of the reasons behind Sony's determined push to issue ADR stock was the company's financial situation. By this time, Sony was no longer pressed with worries like raising money for day-to-day operating expenses. Money for R&D or plant and capital equipment investments, however, was another story.Japanese banks would not easily lend money for reasons of their own. The rapid growth in Japanese industry in the postwar period throughout the Korean War led to a scarcity of money on the open market. Japan was chronically short of funds. Banks were the only place to which people could turn, but the high demand for loans only aggravated things, creating a Catch-22 situation. Moreover, from prewar days most of the large business concerns had aligned themselves with certain banks. This made fund-raising even more difficult for a newcomer like Sony with no affiliations.Through their long association with Bandai, Sony had dealt exclusively with the Mitsui Bank. The Mitsui Bank was a relatively new institution, created just after the war along with the Dai-ichi Bank as a result of the Teikoku Bank split-up. Naturally then, Mitsui's small capital holdings made it a second-class bank. Furthermore, since it gave precedence to its old Mitsui group affiliates from the prewar days, it did not have the margin to lend funds to Sony.Noboru Yoshii, a former branch manager of one of Tokyo's largest Mitsui offices who had joined Sony the year before, suggested that Sony should conduct business with all the major banks. As he was a long-time bank employee, he was well aware of the situation.At the time, not a single financial institution held major shares of Sony stock. Mitsui Bank and the Nichido Fire and Marine Insurance Co. together held a mere 8%. In comparison, Japanese banks owned 23% of all industrial stock, making it clear how low Sony was rated in their eyes. Yoshii visited Mitsubishi, Fuji and other leading banks to ask them to do business with Sony and become stockholders. He hoped to increase the share of stable, large shareholders to 14 or 15%.

Sony's First Day on the NYSE

A 1933 U.S. disclosure law had been enacted as a safeguard against fraudulent securities trading. It required companies to disclose all pertinent information on their overall financial standings to potential investors. In addition, first-time issuers were required to file a multitude of securities registration statements with the SEC (Securities and Exchange Commission).Meeting these requirements was a formidable undertaking. Morita was shouldered with the task of preparing all the necessary papers and, more importantly, straightening out all problems arising from the different legal and accounting practices, forms and even language differences between Japan and the United States.The whole process began by translating the pertinent Japanese business laws into English. Next, all the materials needed to prepare the required reports had to be assembled.In accordance with American accounting practices, securities reports were required to include consolidated statements of earnings, balance sheets and other detailed information of Sony and all its subsidiaries. Then, independent American CPAs audited Sony's financial position over the previous three years and four months. At the time, however, the concept of "consolidation" did not exist in Japan. Morita had to first figure out what "consolidation" actually meant. This was followed by a continuous stream of American lawyers and accountants visiting Japan to help, and Sony's Accounting Division staff spent days and nights preparing required documents and consolidating all their statements for the past few years.

Making Digital Audio a Reality

In 1971, Heitaro Nakajima resigned from his post as head of NHK's Technical Research Laboratories and joined Sony. Four years earlier at NHK, Nakajima had commenced work on the digitization of sound and within two years had developed the first digital audio tape recorder. He was struck with the idea of digitizing sound when trying to improve the sound quality of FM broadcasts. Nakajima thought that by using digital technology, which had only been used in computers and long-distance telephone transmission, the quality of recorded sound could be improved.
Spurred by the 1964 Tokyo Olympic Games, the Japanese government as well as private industries had aggressively invested in R&D activities related to broadcast technology. This drive induced growth and development of the domestic broadcast industry. For example, satellite broadcasting was developed and color transmission followed closely behind. Until then, however, these advances in video and audio recording were restricted to analog technologies.Nakajima was one of the first to actually produce digital sound. He achieved this by sampling sound waves at defined intervals. Each sample was then converted into a binary number that could be recorded as a series of pulses on magnetic tape. This was the basic process used to digitize sound. At the time, no one could really see any future in Nakajima's large and expensive digital tape recorder, which reproduced static noise.When Nakajima joined Sony at the invitation of Shigeo Shima, audio technologies were still primarily analog. In addition, there was considerable negative sentiment within Sony toward digital technology, partly because Sony had decided to withdraw its only digital product, the SOBAX electronic desktop calculator.

Studio Recorders Go Digital

in popularizing the CD, the contribution of Toshitada Doi was also instrumental. He was responsible for introducing digital technology to recording studios throughout the world. With 30 young researchers from the Audio Technology Center, Doi began to develop and commercialize digital audio for professional use.Following the development of the home-use PCM-1 digital audio processor in 1977, the professional-use PCM-1600, which used the U-Matic machine, was launched in March 1978. As a master recording system for CD software, the PCM-1600 brought digitization to the recording studio. In fact, it was the beautiful sound produced by the PCM-1600 that had moved Maestro Karajan so much. In 1980, Doi visited recording studios and broadcasting stations around the world to facilitate the commercial use of digital audio systems. While doing so, however, he met considerable opposition. Studio engineers were opposed to digital technology. They criticized digital technology on the grounds that it was more expensive than analog technology and that it did not sound as soft or musical. Some people in the recording industry actually formed a group called MAD (Musicians Against Digital), and they declared their position to the Audio Engineering Society (AES).Amid all this, Doi and his colleagues drew support from various camps. Famous artists like Stevie Wonder and jazz pianist Herbie Hancock were taken by the sound of Sony's digital tape recorders. At an AES Exhibition, these artists sat in the Sony booth while playing back demo tapes they had recorded digitally. By doing so, they gave a tremendous boost to Sony's efforts to promote digital technology. A growing number of musicians began to say, "If Stevie Wonder and Herbie Hancock say they like digital sound, then perhaps we should consider it ourselves." In the classical music world, Maestro Karajan promoted the quality sound of the CD. These great performers played a major role in popularizing the CD.

Hardware and Software Get an Early Start

Shizuo Takashino now led the General Audio Business Group, which had a proven track record with miniaturization. With his team, Takashino worked to complete the development of the MD system in time for a future sales launch. It was at the end of 1991 that the plan to develop a small recording device using a disc 6 cm in size was announced to the 14 members of the development team. All the engineers were experts in miniaturization and they had been involved in the development of both the Walkman and the D-50. Unfortunately, the schedule gave them only one year to develop the new product, which was timed to coincide with the launch of Philip's Digital Compact Cassette (DCC) in November 1992.The engineers burned the midnight oil, even working on weekends. Concerned about the tough work schedule of his staff, Takashino wrote letters to the families of engineers, seeking their understanding and support. "We have entrusted the development of a technology that we consider very crucial to the future of Sony to a member of your family," he wrote. "This person is working very hard for the company and we are most grateful for the efforts being made."

Establishing the Sony Brand

The term Corporate Identity (CI) refers to both a company's characteristics and the image it conveys to the public. In the early years, when Sony was still relatively small and unknown, CI was a totally new concept in Japan. However, people at Sony realized the importance of CI early on and began to promote the Sony brand name worldwide.In 1955, Ibuka and Morita registered SONY as an official trademark of Tokyo Tsushin Kogyo with the intention of establishing the name as a global brand. One month later, when Bulova Inc. of the US promised to order 100,000 transistor radios on the condition that they be sold under its own brand name, Morita refused, saying that his company would only allow its products to be sold under the Sony brand. When pressed, he asked Bulova, "How many people had heard of your company fifty years ago? My company is just starting out, but fifty years from now it will be just as famous as yours."In 1958, Tokyo Tsushin Kogyo, which was gaining recognition for its Sony brand goods, changed its name to Sony Corporation. The name "Sony" is easy to pronounce and read in any language. Moreover, it has a short lively ring, which matched the spirit of freedom and open-mindedness which Ibuka emphasized in the company's Founding Prospectus. The name "Sony" was neither derived from anything connected with the electronics industry, nor from the names of the company's two founders. At the time it was introduced, the name was considered by many Japanese to be quite strange. The fact that it was introduced at all can be attributed to Ibuka and Morita's progressive philosophy.

Sony Design

Sony always strives to manufacture products that fit the Sony brand image. These products are usually classified and marketed as the "World's First," "World's Smallest," "World's Biggest," or "World's Best" products. By the same token, Sony approaches the design of new products in a way that nobody else has done before, emphasizing originality and uniqueness. Good examples include the Walkman, Profeel and Handycam products.One person who was always particularly concerned with product design was Ohga. He said, "If the design of the product isn't attractive, we can't put the Sony logo on it. An appealing design and ease of maintenance are the hallmarks of good industrial design."In the 1960s, when Sony's transistor radio market share was decreasing, Morita asked Ohga, then general manager of the Tape Recorder Division, to take charge of product design. Ohga replied that he would only do it if he were also given responsibility for advertising. Morita agreed, and as a result the product design and advertising departments were combined to form the Design Division.This new division was responsible for introducing two new colors, black and silver, to convey robustness and simplicity in a functionally appealing design. New product designs featured a combination of black plastic parts and silver-colored metal. The first product designed under Ohga's direction was the TFM-110 FM radio, popularly known as the "Eleven." The square design of this product shattered the commonly held belief that radios had to be oblong in shape. The combination of the shape and the black and silver color scheme resulted in such excellent sales that Sony's radio business was rejuvenated. "Eleven" became one of Sony's classic designs, which was used in successive products.