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Selling Broadband Goods and Services in Japan
The world leader in adoption of new technologies.
By: Gordon Feller & Mary McNamara
Created: March 15, 2003
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. Japan’s Marketplace
Realities
Despite all of its troubles, 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 2002, 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.
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 Inside Japan’s Marketplace
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 Inside Japan’s Marketplace
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 Shaping the Japanese Market
Japanese culture and business practices differ from those in North America. US and
Canadian 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. North American 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
North America.
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.
How to Export to the Japanese Marketplace
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 Industry Contacts
Computer Entertainment Software Association (CESA)
Internet: http://www.cesa.or.jp
Digital Content Association of Japan (DJAC)
Internet: http://www.dcaj.or.jp
Internet Association of Japan
Shinjuku 171 Bldg., 2nd Floor
1-7-1 Shinjuku,
Shinjuku-ku, Tokyo 160-0022, Japan
Fax: (81-3) 5379-5338
E-mail: sec@iaj.or.jp
Internet: http://www.iaj.or.jp
Japan Personal Computer Software Association
4F Sudacho Verde Bldg.
2-3 Kandasuda-cho
Chiyoda-ku, Tokyo 101-0041, Japan
Tel.: (81-3) 3253-9166
Fax: (81-3) 3253-0159
Email: Finfo@jpsa.or.jp
Internet: http://www.jpsa.or.jp/english/
Mobile Media Japan
Sawada Building, 4F
Shibuya-ku Higashi 3-22-8
Tokyo, Japan 150-0011
Tel.: (81-3) 5774-7083
Fax: (81-3) 5776-3366
Internet: http://www.mobilemedia.com
New Media Development Association
Mita Kokusai Bldg.23F, 1-4-28 Mita
Minato-ku, Tokyo 108-0073, Japan
Tel.: (81-3) 3457-0671
Fax: (81-3) 3451-9604
Email: info@nmda.or.jp
Internet: http://www.nmda.or.jp
Japan Government Contacts
Ministry of Economy, Trade and Investment
Trade & Investment Facilitation Division
1-3-1 Kasumigaseki, Chiyoda-ku
Tokyo 100-8901, Japan
Tel.: (81-3) 3501-1659
Fax: (81-3) 3501-0997
Internet: http://www.meti.go.jp/english/index.html
Ministry of Finance (Customs)
3-1-1 Kasumigaseki, Chiyoda-ku
Tokyo 100-0013, Japan
Tel.: (81-3) 3581-4111
Internet: http://www.mof.go.jp/~customs/
Ministry of Foreign Affairs
Standards Information Service
First International Organizations Division
Economic Affairs Bureau
2-2-1 Kasumigaseki, Chiyoda-ku
Tokyo 100, Japan
Tel.: (81-3) 3581-3813
Fax: (81-3) 3503-3136
Internet: http://www.mofa.go.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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