Japan's Broadband Multimedia Marketplace The world leader in adoption of new technologies.
By: Gordon Feller & Mary McNamara
Created: October 22, 2002
Readers who use this information for investment purposes do so at their own risk!
Opinions expressed are just that and not based on insider information or information
otherwise obtained illegally.
Report:
Japan
is the world's second largest economy and also the second largest market for information
technology (IT) equipment and services (i.e. telecommunications, computers, peripherals,
software, and multimedia).
Japan's
IT service market was valued at $93 billion in 2001, which represents a 7.2% increase over
2000. The market is forecast to grow at an annual growth rate of 7.4% to reach $125
billion by 2005.
In
2000, the information service industry in Japan employed 530,000 people, including systems
engineers, programmers, consultants and others, which represents an increase of over 4%
from 1999.
In
Japan, the term “new media” is best understood as interactive applications that
combine moving pictures or sound (or both) with graphics and text. The term can refer to a
diverse range of products or services which include, but are not limited to, video games,
CD ROMS, e-mail, electronic commerce and services delivered over the World Wide Web.
Japan
has a higher take-up of new technologies than any other nation, and penetration of
multimedia computers with modems is higher in Japan than in any other industrialized
nation.
Over
90% of Japanese companies use the Internet in their business operations. More than 56
million Japanese are using the Internet, and this is forecasted to exceed 100 million by
2005.
A
key feature in the spread of Internet usage in Japan is the fast-paced development of
Internet-enabled cellular telephones. It is estimated that 45 million Japanese access the
Internet through their cellular telephones, which makes this the most popular method of
accessing the Internet in Japan.
The
penetration rate of cellular telephones in Japan stands at 52.6%. New media products and
services related to mobile services include e-mail, banking, e-commerce, and Internet
access. Third-generation (3G) mobile service, including video, has recently been launched
in Japan but take-up has been slower than expected.
Approximately
one-third of Japanese Internet users shop online. New media applications such as software,
books/magazines and music/CDs are among the most popular purchase items.
Japan's
software market was valued at approximately $23.4 billion in 2001. Imports accounted for
$11 billion of this total.
Japan
suffers from a major shortage of software engineers, with an estimated demand shortfall
equivalent to 25 000 man years.
Japanese
companies invest approximately 14% of their total budget on IT.
Opportunities
Digital
Subscriber Line (DSL) access is a very high growth and underdeveloped market in Japan and
continues to rapidly add subscribers. The total number of DSL subscribers reached 921,867
at the end of October 2001, a 57-fold increase since January of 2001. Prices for monthly
access range between JPY2000 ($28) and JPY3000 ($41) per month and it has quickly become a
highly competitive field filled with numerous Internet service providers.
Japan
leads the world in mobile data and Internet services and will be the test bed for 3G
services. While low cost and free ISP access is driving high subscriber growth, it is
believed that enhanced content is the key to long-term success of Japanese ISPs.
Internet-based
business (Business to Business and Business to Consumer) is expected to be valued at $430
billion by the year 2005. Strong demand in customer-relationship management (CRM) and
supply-chain management (SCM) systems is expected, as manufacturing, distribution and
financial businesses upgrade their electronic purchasing and acquisition capabilities, and
pursue other business solutions. It is also predicted that there will be a growing need
for application service providers (ASPs), especially among smaller firms with tighter IT
budgets.
The
largest markets for information services have typically been in the manufacturing and
finance/insurance sectors. However, the public sector is expected to significantly
increase its spending on information services as Japan pursues its
"e-government" initiative.
On
January 1, 1996, Japan implemented a new "Agreement on Government Procurement"
in an effort to expand opportunities for foreign firms and increase international
government procurement competition in Japan. Based on current
e-government
plans, central government agencies and municipal governments must build a large number of
systems, valued at an estimated $130 billion by 2003.
Key
Players
NTT
DoCoMo is Japan’s dominant mobile telephone operator with 59% of the market. The
other two major operators are KDDI and J-Phone.
Even
though the Japanese Internet Service Provider (ISP) market is highly fragmented with over
3200 providers, Japan’s telecom companies, Docomo AOL (a joint venture formed by NTT
Docomo and AOL) and KDDI, as well as Fujitsu, NEC and Sony dominate the consumer ISP
market. NEC Corp, Matsushita Electric Industrial Co, KDDI Corp and Japan Telecom Co have
announced that they will form a joint venture firm in June to provide Internet access
services as a single ISP.
Japanese
companies (Sony, Sega and Nintendo) have historically dominated the $17 billion video
gaming industry. However, Microsoft’s X-Box, a new entrant into this industry, is
leading the convergence of new media applications in video gaming, Internet, e-mail, music
and video.
Japanese
online retailers of publishing materials include Tohan Corp./Softbank Co., Sanseido Co.,
Kinokuniya, Book Service (run by Yamato, a delivery company) and Tosho Ryutsu Centre.
German based Bertelsmann Verlag and U.S.-based Amazon.com entered the Japanese e-tailing
market in 2000.
The
major online retailers of music and CDs in Japan are WEBNATION, Tsutaya, Amazon.co.jp and
HMV Japan kk. Several companies including Sony Music Entertainment, NTT DoCoMo and Tower
Records have recently started to offer customers the option of downloading music from the
Internet.
Major
animation companies—such as Toei Animation Co., Ltd., Nippon Animation, Production
IG, and others—are also key players in the market and are big consumers of animation
software. (For links to other Japanese animation companies, go to the AniPike Internet
site: http://www.anipike.com/comjpn.html
End-Users
Japanese
culture and business practices differ from those in the West. Foreign firms interested in
doing business in Japan should be sensitive to these differences if they are to penetrate
the market. Important considerations include:
Japanese
language skills can be invaluable, as can a thorough background in Japanese culture and
etiquette. While many Japanese business executives speak some English, a skilled and
well-briefed interpreter, while expensive, often prevents communication problems.
It
is important to be honest and direct, while avoiding appearing overbearing.
Typically,
the first meeting is to get acquainted and to establish the broad interest of the calling
party. A series of meetings with a large number of Japanese company representatives is
common. Compared to North American practice, business negotiations may proceed slowly, as
the Japanese side may prefer delaying the agreement to being criticized later for making a
mistake.
Be
prepared to attend social events after work. The Japanese view these informal gatherings
as a means of establishing mutual trust and understanding between new partners
Making
cold calls to Japanese businesses is not an effective method of establishing
relationships. The Japanese prefer to do business only when they have been properly
introduced and have met face-to-face. An introduction by a intermediary typically serves
to vouch for the reliability of both parties. Initial contacts between Japanese firms are
usually formal and made at the executive level, while more detailed negotiations are often
carried out at the working level.
The
Japanese culture requires businesses seeking to do business in Japan to present an image
of dependability, innovation, superior quality, competitiveness, and a commitment to
building personal relationships. Foreign companies can demonstrate their commitment by
showing that the company is well regarded in its industry; by demonstrating that the
company has researched the market properly; and by proving that the company is prepared to
respond to cultural requirements (e.g., by preparing high-quality marketing materials in
Japanese on the company and its products) and that it responds promptly to all inquiries
from Japan.
Product
service and customer support before, during and after the sale are important in Japan.
Every effort should be made to answer technical questions in detail and to ensure that delivery dates and other
issues regarding shipments of products are clear. Missed deadlines and damaged goods
through poor shipping practices can lead to a loss of business in Japan.
Japanese
consumers find a product's attributes and quality important, and most are still willing to
pay more for superior quality. However, the idea of a "bargain" and
considerations of "value for money" have gained popularity. Japanese buyers are
also very concerned with the quality of packaging and have used poor packaging as a reason
to shun imports.
Personal
contact with customers is very important. Making regular sales calls demonstrates
commitment to the market and is also an excellent way to obtain market feedback. In
addition, frequent communication by fax, e-mail or phone is crucial, and regular visits to
Japan are necessary, as are offers to host new partners on trips to the home base outside
Japan.
Japanese
consumers have a strong preference for cash and reservations regarding the use of credit
cards over the Internet or over the telephone. As a result, e-tailers have turned to
convenience stores such as Seven-Eleven Japan, with their sprawling network of outlets, as
a pick-up and payment centre. Convenience stores have even supplanted transportation and
delivery companies as the primary distribution channel for Internet retailers, as a result
of lower prices for delivery-and-holding services.
Japanese
buyers have typically preferred a stable software product over leading edge products. They
have also been prepared to pay premium prices for applications.
The
Checklist
As
a result of corporate practices and cultural differences, Japan has often proven to be a
difficult market for foreign companies to penetrate. For example, exclusive buyer-supplier
networks and alliances maintained by some Japanese companies belonging to the same
business grouping (or "keiretsu") limit competition from foreign firms and
domestic newcomers.
Japan
places few formal barriers on imported goods and its average tariff rates are among the
lowest in the world, in line with other industrialized nations.
Japan
imposes a 5% general excise consumption tax on all goods sold domestically. For importers,
payment is due at the time of declaration.
Local
branches of foreign firms are generally taxed only on corporate income derived from within
Japan. The effective corporate tax rate, including local taxes, is 40.87 percent.
There
are no customs duties on audio and video software.
Most
goods are deemed as "freely importable," and do not require an import license.
Documents
required for customs clearance in Japan include standard shipping documents such as a
commercial invoice, packing list, and an original and signed bill of lading, or, if
shipped by air, an air waybill. Air shipments of values greater than $1 380 (JPY100,000)
must also include a commercial invoice.
Commercial
invoices for each item should be as descriptive as possible. The packing list should
include the exact contents of each container, the gross and net weights of each package,
and all container measurements using metric units.
Japan
imposes two product requirement standards; regulations (or mandatory standards) and
non-mandatory voluntary standards. Regulations can apply to the product itself, as well as
packaging, marking or labeling requirements, testing, transportation and storage, and
installation. While not mandatory, compliance with voluntary standards can greatly enhance
a product's sales potential and help win Japanese consumer acceptance.
The
Japan Industrial Standards (JIS) mark, which is a voluntary standard, will help companies
competing on bids in the Japanese government procurement process. Products that comply
with JIS standards are given preferential treatment in government procurement decisions.
There
are no legal requirements for labeling audio or video software. There are, however,
specific markings that can be used to prove that a product is a legitimate one sold with
the consent of the copyright holder.
The
Japan External Trade Organization (JETRO), the Manufactured Imports Promotion Organization
(MIPRO) and Japan's Ministry of Economy, Trade and Industry (METI) administer a variety of
assistance programs such as low interest loans to encourage imports, assistance in finding
Japanese business partners, market research, export study programs, and the provision of
free temporary office space in six Japanese cities.
Japan Government Contacts
Ministry
of Economy, Trade and Investmenthttp://www.meti.go.jp/english/index.html
Ministry
of Finance (Customs)http://www.mof.go.jp/~customs/
Ministry
of Foreign Affairshttp://www.mofa.go.jp
Japan Industry Contacts
Computer
Entertainment Softwarehttp://www.cesa.or.jp
Digital
Content Association of Japanhttp://www.dcaj.or.jp
Internet
Association of Japansec@iaj.or.jp http://www.iaj.or.jp
Japan
Personal Computer Software AssociationFinfo@jpsa.or.jp http://www.jpsa.or.jp/english/
Mobile
Media Japanhttp://www.mobilemedia.com
New
Media Development Associationinfo@nmda.or.jp http://www.nmda.or.jp
Readers who use this information for investment purposes do so at their own risk!
Opinions expressed are just that and not based on insider information or information
otherwise obtained illegally.
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