To : John Alexander, Jr.

From : James Gladhand

Re : Asian Production Base

Date : February 21, 1995

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This Memorandum is in response to your Memorandum regarding the proposed Asian production base. As you know, up to now we have not had a significant overseas personnel component except in our European production facility in Bristol, England. The issues involved in taking on and managing staff for a major production base in Japan are well beyond Personnelís current level of experience (given the very different cultural and employment assumptions that apply there and the linguistic differences).

Based on my research and discussion with our consultants, we will have a great deal less flexibility in hiring and firing employees in Japan than in the United States. Also, the Japanese legal system is especially protective of the rights of longer term employees and significant costs could be incurred in discharging such employees in the event that we wished to withdraw from the joint venture.

Another important point is our ability to attract the type of local staff we are seeking. I understand that many of the more talented employees simply are not willing to work for a foreign company even at wage levels substantially higher than in ordinary Japanese companies. Many employees have little desire to work in a environment where they must deal regularly in the English language and make adjustments to the different habits of foreign supervisory personnel. Consequently, trying to obtain qualified personnel to staff our operation is likely to be a long and costly process.

Another problem is with sending personnel to Japan to live for an extended period of time. I believe you are aware of how few of our executives would be willing to pick up and move to Japan. There is also the cost factor. Expatriate packages for foreign managerial staff in Japan are very costly, often involving sum which are multiples of their ordinary salary in the United States.

Have we thought about asking our joint venture partner to provide staff for the project from their existing resources? I estimate that staffing the factory and administrative facilities would require approximately 15 senior managerial personnel, 35 to 50 sales and marketing staff, 30 research and production technicians and professionals and 100 production line and other staff workers. The total staffing would be between 200 to 250 persons. If Personnel was made responsible for hiring arrangements, we would need to get started almost immediately in order to have the people necessary for a July 1996 opening in Japan.

I will be working up detailed figures next week but I really think it best at the outset to see if we canít get Muttsubishi to make all but the most senior management personnel arrangements. From the point of view of Personnel, we should to be able to watch over our technology and investment in Japan with a very small group (perhaps as few as 5) expatriate staff dispatched from our U.S. operations. This would considerably ease the burden on Personnel which otherwise would have to learn to manage new staff in a difficult culture and environment.

Jim