EXECUTIVE SUMMARY

This study of electronic manufacturing and packaging in Japan grew out of a widespread interest on the part of U.S. government and industry leaders to understand the strengths of Japan's electronics industry as a step towards improving the vitality of the U.S. electronics industry. The Japanese Technology Evaluation Center (JTEC) assembled the electronic packaging and manufacturing panel in 1993 at the request of four U.S. government agencies: the Advanced Research Projects Agency of the Department of Defense, the Department of Commerce, the National Aeronautics and Space Administration, and the National Science Foundation. The purpose of the study was defined in consultation with industry advisors: to evaluate the technologies, processes, priorities, and supporting infrastructures that have allowed Japan to achieve dominance of the global electronics marketplace. The JTEC electronics packaging and manufacturing panel visited Japan from October 1-9, 1993, then reported its findings at an open meeting in Washington, D.C., on January 12, 1994. This written report is based on the panel's observations during site visits; on dialogues with colleagues in Japanese companies, universities, and professional associations; and on literature published subsequent to the panel's site visits.

PRINCIPAL CONCLUSIONS

The JTEC panel on electronic manufacturing and packaging confirmed its expectations: Japan has the most advanced electronic assembly manufacturing processes in the world. The United States must learn the lessons of Japan and become a world-class manufacturer.

1. Japan leads the United States in almost every electronics packaging technology. Comparisons of electronic packaging technologies in Japan and the United States (as in Table E.1) reveal that, while some U.S. companies lead in specific ceramic technologies and in the technologies of thin film multichip modules (MCMs), flip chip assembly, and package design, Japanese firms are the leaders in all other packaging categories.

2. Japan clearly has achieved a strategic advantage in electronics production and process technologies. Panel members believe that Japanese competitors could be leading U.S. firms by as much as a decade in some electronic process technologies.

Table E.1
Packaging Technology Leadership (U.S. Compared to Japan)

3. Japan has established this marked competitive advantage in electronics as a consequence of developing low-cost, high-volume consumer products.

4. Japan's infrastructure, and the remarkable cohesiveness of vision and purpose in government and industry, are key factors in the success of Japan's electronics industry.

5. Although Japan will continue to dominate consumer electronics in the foreseeable future, opportunities exist for the United States and other industrial countries to capture an increasingly large share of the market.

6. The JTEC panel identified no insurmountable barriers that would prevent the United States from regaining a significant share of the consumer electronics market; in fact, there was ample evidence that the United States needs to aggressively pursue high-volume, low-cost electronic assembly, because it is a critical path leading to high-performance electronic systems.

The Japanese can do it; Americans can do it. The issue that separates the United States from Japan in high-volume, low-cost electronic assembly is neither technology nor manufacturing; it is primarily the will to take the measures necessary to compete and succeed.

BACKGROUND

The electronics industry is a vital part of the U.S. economy. It is "the largest manufacturing employer in the United States...[accounting] for nearly 11% of the U.S. gross domestic product. It is expected to grow at a rate of 4% per year throughout the remainder of the 1990s" (MCC 1992). The United States has developed or is developing many of the state-of-the-art technologies on which the world electronics trade depends; also, the U.S. electronics industry has invested more money in R&D than have its foreign competitors. Despite these strengths, U.S. electronics manufacturers have steadily lost market share to foreign-owned or foreign-based manufacturers in practically every electronics sector. According to Ross (1992), "the U.S. electronics industry has been losing about 3% of world market share per year since the mid-1980s, a market that today is about three-quarters of a trillion dollars and is expected to be $2 trillion by the beginning of the next century."

While the United States has lost ground in the world electronics marketplace, Japan has steadily improved its competitive position; it is now the recognized world leader in the production of consumer electronics products. U.S. firms have abandoned the markets for many consumer electronics products, and so there has been little incentive to keep up with Japanese firms in improving low-cost, high-volume electronic packaging and assembly equipment technologies. Without the incentives and profits of staying competitive in the consumer marketplace, however, there is much evidence that the U.S. electronics industry has lost its ability to efficiently produce top-notch, reasonably priced electronics components for the industrial and military - as well as the consumer - sectors. Furthermore, electronics products have come to represent a significant portion of the U.S.-Japan trade imbalance. In 1992 Japan's electronic exports to the United States were valued at $30.4 billion, 32% of its total exports to the United States; in that year the United States had a negative trade balance with Japan of $7.3 billion in consumer electronics and $7.8 billion in computers and peripheral equipment (ITTRI 1994). These trends give U.S. policymakers and electronics manufacturers ample cause for concern.

The term "electronic packaging" today means the production and assembly of a great many types of increasingly tiny and complex electronic circuitry components and boards central to the design and low-cost assembly of electronic products. Japan's manufacture of products like camcorders, palmcorders, handycams, VCRs, and cellular phones has simultaneously driven the miniaturization of electronic packaging and a corresponding advancement of assembly technologies. These popular consumer electronic products utilize a relatively large amount of analog circuitry, which has pushed the Japanese to develop cost-effective processes for assembling high-density miniaturized passive components. The use of "1005" packages (100 mm x 50 mm) and smaller formats requires both leading-edge surface mount process capabilities and ultrasmall component developments. That is, Japan's successes derive not only from production of advanced devices but also from development of new equipment and procedures to manufacture and emplace those devices. This study investigates both electronic packaging technologies per se and also related manufacturing technologies. In response to the widespread notion that the United States needs to better understand "the realities of Japanese industry," this study also investigates goal-setting and infrastructure in the electronics industry of Japan.

CREATING A VISION OF THE FUTURE

Chapter 2 provides a model of Japan's vision of future product development activities. The introduction of next-generation components and equipment corresponds to the introduction of next-generation products. At Sony, next-generation products are defined as half the size and half the weight at the same cost. Roadmaps signal industry suppliers about future customer requirements. The panel found that in Japan

The changes taking place in consumer electronics have significant implications for the future. Companies in the high-volume electronics business are on a steep learning curve that is providing continuous opportunities to fuse technologies to meet product objectives. This is most evident in the flat panel display technology that is merging traditional electronics with displays.

It appears that component vendors are moving toward supplying functional modules, and system integrators are becoming increasingly aware of the benefits of also manufacturing components. Sony, for example, now manufactures about 65% of the key components of the compact disc player. There is evidence that companies like Murata and Nippondenso are seeking increased independence through technology and component self-sufficiency. As vendors provide more of the subsystem integration and component costs increasingly dictate profits, the relationships between suppliers and end-product producers may change. At the time of the JTEC team's visit, however, there was no indication of any lessening of the traditional supplier-customer interdependencies. Subcontractors contribute to new product development, and technical information is widely shared among vendors and end-product integrators. This organizational structure lends itself to effective concurrent development, shorter development cycle times, and lower life-cycle costs.

As the fusion of technologies increases and semiconductors, electronic packages, displays, and peripheral devices become increasingly integrated, the electronics industry may undergo major restructuring; it is not evident who will have the major advantage. It is clear that advanced technology and flexible manufacturing will not, by themselves, provide the advantage; nor will excellence in design. Organizations capable of quickly responding to change, led by visionary and capable management, will hold the essential competitive advantage. The lesson from Japan is that teaming is a primary success factor.

SUPPORTING INFRASTRUCTURES

Chapter 3 provides an overview of the infrastructure that supports Japan's leadership in consumer electronics. The panel found that

The existing infrastructure supports movement into advanced technologies and products. This is particularly evident in the electronics industries. Separation of production development focuses attention and resources on manufacturing advancements that ensure the rapid introduction of new, high-quality products at low costs. Without advanced equipment capabilities, it would take much longer for new component technologies to become part of next-generation product designs. The strategic importance of manufacturing is emphasized in the education of the workforce and in the priority that management gives to continuously improving the process in order to more rapidly and efficiently manufacture complex products.

The United States has lost the infrastructure necessary to be globally competitive in the production of high-volume, low-cost electronic products, despite the fact that U.S. industry may dominate certain sectors such as microprocessors. While the United States continues to invest heavily in R&D, Asia is making major investments in manufacturing infrastructure. U.S. investments in R&D are now being exploited offshore, with associated negative effects on jobs, the balance of trade, and the general economic health of the country. Domestic suppliers have been abandoned in favor of low-cost offshore producers that frequently receive the latest technologies from their customers.

PACKAGING TECHNOLOGIES

Chapter 4 explores Japan's technology packaging strategy. It is important to understand not only what technology Japan is developing, but also how firms pursue their objectives. The JTEC panel's findings in this regard indicate that Japanese companies

Miniaturization is expected to continue to place pressure on packaging technologies and their assembly. In both the United States and Japan, the rate of silicon scale integration will continue to improve semiconductor cost and performance through the 1990s as semiconductor suppliers develop systems on a chip. At the next level in the "food chain," the focus in the 1990s will be on high-density electronic assembly technologies. Many of the gains in the 1990s will be attained through continuous improvements in Japan's existing surface mount packaging and assembly technologies, leading to devices with improved functionality, input/outputs in excess of 1,000, lead pitches below 0.2 mm, low-cost MCMs, and improvements in equipment technology to meet the requirements shown in Figure E.1. Specifics of the Japanese roadmaps for achieving these goals are provided in the report.


Figure E.1. Mass production strategy for low-cost electronic products.

The drive toward smaller, thinner, and lighter high-pin-count packages is expected to be satisfied initially through the employment of thin quad flat pack, tape automated bonding, and pin grid array. The ball grid array will be available for applications exceeding 600 pins. Flip chip technology is being extensively pursued by most Japanese companies. Of particular interest is direct bonding of a bumped chip to a printed wiring board (PWB) using a low-temperature solder that is hot injection deposited onto the PWB through a mask. While there are continuing technical problems that need to be solved, such as the development of a thermally compatible encapsulant, success will permit Japanese investments in PWB to be incrementally improved over the next decade to meet consumer product requirements. There is evidence of merging technologies to meet new high-volume product demand: MCMs are appearing in both supercomputers and camcorders, and electronic drivers are fusing with flat panel displays.

PRODUCTION TECHNOLOGIES

Chapter 5 discusses production capabilities in electronic packaging. It was evident to the JTEC panel that Japanese manufacturing excellence is a consequence of the tight coupling of functions within each company and with respective suppliers. Major collaboration among industrial partners and between government and industry, as conclusively demonstrated in Japan, is required to sustain a competitive posture in the high-volume, low-cost electronics business.

Japanese industry as a whole has focused a massive amount of resources on the design and development of complex automated equipment, and the range of equipment development expertise within individual companies is tremendous. That expertise covers all the technological areas required to be self-sufficient and dominant in this field. The consensus in Japan is that equipment provides a major competitive advantage and that equipment development technology is mandatory in order to lead in the introduction of new products. The panel also found that

Component miniaturization, cost reduction, reduced development cycle times, and improvements in reliability and quality require continued advancement in production and process technologies. Production requirements will include more affordable and environmentally safe materials; flexible and automated equipment linked to affordable manufacturing processes; cost-effective and accurate testing; effective partnering with suppliers and enterprise teaming; continuous process improvements; and innovative, user-friendly designs. Increased demands for chip attach technologies will supplement current surface mount technology. Differences between technological alternatives will fade as technologies converge and hybrid electronic assemblies become commonplace in integrated systems.

The principal technologies that have provided competitive advantages include surface mount technology and flexible assembly technologies capable of responding to high-volume production with multiple product variations. While Japanese companies continue to do R&D in advanced process technology, it appears evident that surface mount technologies will continue to dominate consumer products into the next century. Mounting methods will become more sophisticated and include greater levels of chips and direct bonding of bumped chips. Mounting densities will increase to 50 components per square centimeter. Passive components are expected to reach their size limitation at 0.8 mm x 0.4 mm before they are integrated into modules. Pin pitches will be as low as 0.15 mm. Low-cost resin board technologies will reach 50 micron lines and 50 micron vias with eight layers.

In the consumer electronics of the future, it will be increasingly difficult to separate integrated circuits, electronic packages, and flat panel displays. While continuous improvements can be expected in materials, equipment, and design tools, it will be the flexible, automated, adaptive manufacturing processes that will provide the primary competitive advantage. It is production technology that is making Japan the leader in high-volume, low-cost electronics, and it appears evident that this same strength will continue into the future.

QUALITY AND RELIABILITY

Chapter 6 describes Japan's approach to quality and reliability. Japanese firms appear to seek out the root causes of quality and reliability problems. This has led Japanese producers to focus on continuous improvements in materials, equipment, and processes. Quality is considered the cost of entry; low product cost is considered the requirement for success.

Suppliers that are able to provide the required quality components at the appropriate time and cost will be the future market winners. To assure product quality, every Japanese supplier has had to resolve materials, equipment, and processes problems. Component suppliers often design future manufacturing processes in order to be "first to market" with new components. Next-generation production systems are developed for next-generation products. In order to fully exploit capital investments and to minimize variability and product defects in the manufacturing process, these new systems are only reluctantly changed once installed.

PRODUCT REALIZATION

Chapter 7 summarizes many of the comprehensive activities that make up Japanese firms' strategy of product development. The panel reached several conclusions about product realization in Japan:

Japan is investing to sustain its advantage through continuing to develop new materials, packaging, designs, equipment, and improvements to production processes. It was obvious that many companies had built competitive advantages by developing next-generation components, like charge-coupled devices for video cameras and liquid crystal displays for portable TVs and notebook computers. These components have given Sony a 75% market share in 8 mm video cameras and Sharp a major share in calculators and portable digital assistants. Today companies are seeking to use these component advantages to introduce innovative products like Sharp's new ViewCam. Cost pressures will accelerate global manufacturing partnerships, but Japan will continue to control many of the enabling production and component technologies used in next-generation packages.

Once they have developed a market, Japanese firms have maintained market leadership through continuous improvement of existing products. Concurrent engineering allows for short product development cycles, as short as six months for Sony's Walkman products. Plans for next-generation products are managed by senior executives who have access to needed resources to push for rapid technological development. This next-generation product-pull scenario is linked to a long-term product strategy for which the primary focus is affordability.

An industrial country cannot survive on technology alone. Unlike Japan, the United States has not fully understood that technology must be exploited through the manufacture of products in sufficient volume to generate the data - as well as profits - that are the basis of continuous improvement. Without the data generated by high-volume production, there are fundamental limits to improving manufacturing processes. The sought-after six-sigma process is directly dependent on the generation of significant data to evaluate a full production process.

The driver for electronics technologies has shifted from semiconductors to electronic assemblies, which are giving rise to new families of products that rival the integration of the camera and recorder. The telecomputer is the next high-volume consumer product. The word is a compound descriptive that links television and computer, telecommunications and computer, telephone and computer. Next will be the electromobile, with transportation increasingly dominated by the introduction of more and more electronics. There are those who are already referring to cars of the future as "chips on wheels." With more than fifty electric motors in some cars, the term "motor vehicle" is taking on a whole new meaning.

CONCLUSIONS

The JTEC study on electronic manufacturing and packaging in Japan, as described in this report, makes it very clear that Japan dominates electronic production technology. The report further demonstrates that Japan's success can be directly linked to a product-pull strategy that has the effect of exploiting new technology quickly. While Japan continues to invest in research and development of new technology, the dominant influence is in the process of continuous improvement of existing technologies to meet the cost, size, weight, and power requirements of the consumer market including portable electronic products. The strategy of continuous improvement is also considered the key to satisfying cycle-time reduction requirements.

When describing future consumer electronics there is a major focus on the multimedia units that will be found in seamless networks where data, voice, and graphical information are transmitted almost instantaneously. The cost of electronics is expected to continue decreasing at its present rate until, as Edward McCracken, CEO of Silicon Graphics, suggests, "We must make available $150 to $300 systems providing realtime audio and video processing" (1994, 3). In the area of multimedia and networking technology, the United States continues to be in a very strong position; however, Japan and other Asian countries totally dominate consumer electronics. The JTEC panel is in full agreement that the United States must regain a prominent position in high-volume, low-cost electronics, and must do so quickly. As Peter Drucker has said, "A degenerative disease will not be cured by procrastination. It requires decisive action" (1994, 95). The decisive action is the commitment to exercise control over the enabling technologies which, when integrated, will produce the electronic systems that will be found at the nodes of the digital highways. It is an uphill struggle, but it is a challenge that must be accepted if the United States is to be globally competitive.

The competitors are not just the Japanese. In 1994, Taiwan was providing about 81% of the world's merchant motherboards; procurement by Japan of PC products in Taiwan is projected to reach $1.4 billion in 1996. South Korea is aggressively moving into consumer electronics with companies like Samsung expected to produce up to 90,000 AMLCD flat panel display units per month by the second quarter of 1995. China has become the country of choice for low-cost manufacturing, and it will continue to work with foreign countries to introduce high-tech production capabilities. Japan is increasingly moving to offshore production in order to meet cost requirements. Haruo Tsuji, president of Sharp, has pointed out that, "The production cost in Japan has become the highest in the world." He goes on to say, "Japan is becoming a supplier of components and production machinery, like robots, to be used by other nations to assemble the final products" (1994, 3-1).

The JTEC panel did not see anything that would prevent U.S. companies from recapturing a significant share of future consumer products. However, as Drucker notes, "It requires decisive action." Certainly the United States' strong position in software can be used to its advantage, but even in that realm, Americans must be prepared for challenges from countries such as India.

Short product development cycles and product life cycles are causing companies like Compaq to produce more of their components locally because of the need for shorter delivery times. For many multinationals, however, "locally" means to "build where you sell." The United States is still the world's largest growth market and, therefore, can exploit the time parameter and build locally for its own market. There is a need, however, to prepare for the future when the Asia Pacific region will be the world's greatest growth market and "build where you sell" takes on new economies of scale.

We can be encouraged by some recent advances in manufacturing which have demonstrated that some U.S. companies have learned how to become low-cost producers. In some companies this has been done by applying their expertise in developing design tools that are effectively linked to production systems. In other cases the customer requirements are tightly coupled with production systems permitting product customization and fast turn-around. The people-free automated facilities that have characterized many high-volume production areas are giving way to skill-based, worker-enabling technologies that characterize agile production systems.

While the JTEC panel is optimistic that the United States is making progress in improving its manufacturing capability, there is no doubt that Japan will continue to be the country to benchmark against. There is one major concern: the winners in the future will be those countries whose workforces are effectively educated and trained to meet the challenges of 21st century production. In that regard the United States may be seriously at risk. The superior educational systems in some emerging nations, combined with decades of overseas enrollment and foreign students returning from American universities, is encouraging U.S. multinationals to be increasingly dependent on foreign sources for their required talent and is resulting in research and development following manufacturing offshore.

The semiconductor industry roadmap is targeting 0.07 micron geometry capabilities by the year 2010 (SIA 1994). During that period, electronic packaging will have to adapt to accommodate the more stringent semiconductor ground rules. The exploitation of these technologies to meet the demands of the consumer marketplace is what will differentiate the winners from the losers. The United States must regain its preeminence in consumer electronics to retain its position as a technology leader. As Oscar Wilde once said, "The one duty we owe to history is to rewrite it." The United States must rewrite history to regain consumer electronics, and it must improve its educational system to produce graduates that meet future workforce requirements.

In many respects, the JTEC panel conclusions are neither encouraging nor discouraging. The panel saw much to be concerned about when comparing Japanese packaging technology and manufacturing with similar efforts in the United States. It appears, however, that the race into the future has many competitors at the starting gate. The winners will be those who effectively exploit technology and manage global resources to reduce cycle time and meet product affordability criteria. The United States must commit to win; coming in second is being the first loser.

REFERENCES

Drucker, Peter. 1994. "The Theory of Business." Harvard Business Review (Sept.-Oct.): 95.

Hayes, Robert H. 1981. "Why Japanese Factories Work." Harvard Business Review (July-August): 57-66.

ITT Research Institute (ITTRI). 1994. Manufacturing Competitiveness Frontiers. Vol. 18, Nos. 1 and 2 (January/February): 23.

MCC/Sandia National Laboratory. 1992 (September). "Industrial Competitiveness in the Balance: A Net Technical Assessment of North American vs. Offshore Electronics Packaging Technology" (report).

McCracken, Edward. 1994. Electronic Buyers' News. (Oct. 24): 3.

Ross, Ian. 1992. Star Ledger, 5.

Semiconductor Industry Association (SIA). 1994. The National Technology Roadmap for Semiconductors. San Jose, CA.

Tsuji, Haruo. 1994. New York Times (Oct. 23): 3-1.


Published: February 1995; WTEC Hyper-Librarian