How NEC is gunning for IBM. (Global Business).

For years, Japanese technology companies have faced twin challenges in the American market. The first is that no major Japanese company has been able to create a U.S. subsidiary headed by an American with real decision-making authority. Partly as a result of Problem No. 1, the Japanese have been unable to develop the cultural skills for consulting and project management. They had great hardware, but could not compete in software or services.

But give them credit for continuing to try. NEC Corp., one of Japan's giants, is experimenting with a formula it hopes will allow it to go up against the mighty Global Services arm of IBM, among others.

NEC has created a wholly owned American subsidiary called Niteo Partners, headed by President and CEO John Kelly, 42. "Every large Japanese electronics or computer company recognizes that they have to respond," says Kelly. "They have to be able to compete with IBM."

Kelly ran a Boston-based Internet start-up called Zefer, in which NEC had a minority equity stake. Zefer hit the wall, like almost every other Internet start-up. But through the Zefer experience, Kelly developed a relationship with Akinobu Kanasugi, who is now president of NEC. Kanasugi, who earned an MBA at the University of California at Los Angeles, was savvy enough to smell an opportunity. When the technology bubble collapsed, he converted Kelly's operations into an NEC subsidiary. Kelly calls Kanasugi his "godfather."

So Kelly runs New York-based Niteo and its 140 employees as he sees fit. There is no "shadow" management, or Japanese executives who send faxes back every night to Tokyo asking for instructions. That has driven many a U.S. executive over the edge.

The way Kelly and NEC have sorted out the control issue is that the Yank has a direct reporting relationship to Kanasugi and one other NEC executive who sits on Niteo's board along with Kelly.

Kelly and his 140-person group, meanwhile, sell consulting and solutions products to financial institutions such as Bank of New York, Citibank, the Federal Reserve Bank of Boston and First Data. His group uses Internet-based technologies to better manage the "content" that resides on older legacy systems--which is one of IBM's core markets. Other major markets for Niteo are manufacturing and pharmaceuticals.

Kelly, who was involved in the early days of ARPA Net (the precursor to the Internet), is able to tap NEC for the hardware and technology that he needs to service his American clients, but he manages the relationships, helping NEC overcome the cultural barriers.

It's that combination that he argues will allow NEC to compete more robustly against IBM. "I wouldn't be here if I didn't think we can do it," says Kelly. "IBM can be beat." Big Blue, beware.