Japan GDP growth and losses at Japan Post – Gerhard Fasol interviewed by Rico Hizon on BBC TV

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Japan’s economy grows five quarters in a row, and Japan Post books losses of YEN 400.33 billion (US$ 3.6 billion) for an acquisition in Australia

Japan GDP growth, growth of 2%/year. Still, Japan’s economy is the same size as in 2000, while countries like France, Germany, UK today are double the size as in the year 2000

Japan GDP growth: We have seen 5 quarters of economic growth in Japan, for the January-March 2017 quarter the consensus is that the Japanese Government is likely to announce economic growth corresponding to an annual growth rate of around 2%/year (update: Japan’s Government announced an annual growth rate of 2.2%/year).

Generally the business mood in Japan is optimistic now, personal consumption and industrial orders are growing. We see investments in preparation for the 2020 Olympics. Venture start-ups and venture investments are growing, while still at a low level, we see venture businesses developing not only in Tokyo, but also in regional centers around Japan.

One mid-term risk to Japan GDP growth is the potential implementation of the postponed consumption tax rate increase.

The big picture however is, Japan’s economy today is approximately the same size as 17 years ago in 2000. During the same 17 years most major economies, e.g. France, Germany, UK have doubled in size. France, Germany, UK’s economies today are about twice the size as in 2000, while Japan’s economy today is about the same size as in 2000. Quarterly GDP figures just measure the short term fluctuations of this long term behavior.

Rico Hizon: so what would Japan have to do to restart long term growth?

Gerhard Fasol’s answer

Japan would have to do three things to restart economic growth long term:

  1. Population: Implement policies to make it easier for families to have children, shift spending from the aged to children, improve eduction, shorter work hours, build children’s day care centers, gender equality
  2. Implement Prime Minister Abe’s “third arrow”, the reforms. Deregulation not just in a few “special zones” but nation wide.
  3. Improve corporate governance to improve company’s growth, globalization and management.

Japan Post trips up on globalization: books YEN 400.33 (US$ 3.6 billion) losses due to an acquisition in Australia – with a Toshiba connection

Japan Post announced a loss of YEN 400.33 (US$ 3.6 billion), and a resulting net loss of YEN 28.98 billion (US$ 260 million) for the fiscal year ending March 31, 2017.

Japan Post Holdings was launched on the Tokyo Stock Exchange with the IPO on Nov 4, 2015.

Investors expect major growth of Japan Post Holdings into a global business, such as Deutsche Post has with privatization and later the acquisition and merger with the global logistics group DH about 20 years ago.

Around the time of the IPO Japan Post announced the acquisition of the Australian logistics group Toll for about YEN 620 billion (US$ 5.5 billion), while Toll’s market cap previous to the acquisition was about YEN 410 billion (US$ 3.7 billion).

Japan Post’s recent write-down at Toll is about equal its pre-acquisition market cap, or about 65% of the acquisition prize.

The deep problem of Japan Post’s steep write-downs at the Australian acquisition Toll, is that this casts doubts on Japan Post’s developments into a global business.

The Toshiba connection: Japan Post’s former CEO, Taizo Nishimuro (西室 泰三), previously served as CEO and Chairman of Toshiba

CEO of Japan Post at the time of the questionable Toll acquisition was no other than Mr Taizo Nishimuro (西室 泰三), former CEO and Chairman of Toshiba, now honorary advisor of Toshiba, who spent all his career at Toshiba, working at Toshiba since 1961. Toshiba is currently in severe difficulties caused primarily by Toshiba’s acquisitions of US nuclear construction firms, however Toshiba’s fundamental problems go back much much longer.

Japan Post Holding [6178]

Japan Post Holdings was founded on 23 January 2006, following the path to privatization initiated by Prime Minister Koizumi of Japan’s national Post Office.

Japan Post Holdings is listed on the Tokyo Stock Exchange (No. 6178), IPO was on 4 November 2015, and has five divisions:

  1. Japan Post Service (日本郵便株式会社): mail delivery
  2. Japan Post Network (郵便局株式会社): Post Offices = retail and real estate
  3. Japan Post Bank (株式会社ゆうちょ銀行): Tokyo Stock Exchange No. 7182
  4. Japan Post Insurance (株式会社かんぽ生命保険): life insurance. Tokyo Stock Exchange No. 7181
  5. Toll Holdings: logistics

Copyright (c) 2017 by Eurotechnology Japan. All Rights Reserved.

Mobile internet coming of age: i-Mode’s 18th birthday

i-mode menu NTT docomo

The global mobile internet was born today 18 years ago, on February 22, 1999

NTT Docomo announced the start of i-Mode on February 22, 1999 at a press conference in Tokyo

Today, 18 years ago, on February 22, 1999, Mari Matsunaga, Takeshi Natsuno, and Keiichi Enoki announced the start of the world’s first successful mobile internet service to a small number of people who made it to NTT Docomo’s press conference in Tokyo.

For many years, Japan was the global hotspot for mobile internet, mobile broadband, fixed net broadband (FTTH), there is a very long list of inventions, innovation, new services and products which were successfully brought to market in Japan, and in some cases it took 10 years or longer for these same services to succeed elsewhere in the world.

Examples of services and products which saw their invention, or first successful global mass market introduction in Japan include:

Inventing the mobile internet vs capturing global value

Undoubtedly the biggest success story emerging from Japan’s pioneering mobile internet days is SoftBank

After Vodafone acquired a controlling stake in Japan Telecom, it took Vodafone at least one year to realize that instead of a far east backwater waiting for Vodafone, Japan’s mobile market was actually years ahead of Europe at that time. By the time Vodafone realized that instead of sailing into an easy market, they had actually entered the world’s most ferociously competitive market, it was too late, Vodafone sold its Japan operations to SoftBank, which turned out the failing Vodafone-Japan within a few months of intense efforts. SoftBank’s acquisition of Vodafone-Japan and the successful turn-round became the basis for SoftBank to implement Masayoshi Son’s plan to create one of the world’s most important companies.

Other Japanese success stories resulting from pioneering the mobile internet

Japan has created one of the most vibrant smart phone games eco-system, with a large number of smart phone game companies growing, many listed on the Tokyo Stock Exchange.

Beyond games, Japan has created a vibrant sector of internet and mobile ventures, founded in the wave of Japan’s mobile internet and FTTH broadband adoption. However, because of Japan’s well known Galapagos syndrome, few have made it into global success stories yet. However, its not too late.

eMoji made it into MoMa.

QR codes are all over China, however not monetized by Denso Wave, the Toyota family company which invented QR codes for automotive parts management.

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Toshiba nuclear write-off. BBC interview about Toshiba’s latest nuclear industry write-offs

Toshiba crisis

Toshiba is expected to announce write-off provisions on the order of US$ 6 billion today

Toshiba is on Tokyo Stock Exchange warning list for possible delisting in March 2017

This morning 7:30am I was interviewed on BBC TV Asia Business Report about an update of Toshiba’s ongoing crisis, which has been 20 years in the making.

Here some notes in preparation for my interview.

What is Toshiba’s situation now?

Toshiba’s market cap today is YEN 1024 billion = US$ 9.6 billion.
Toshiba is expected today to announce write-off provisions on the order of US$ 6 billion.
Toshiba owes about US$ 5 billion to main banks as follows:

Mizuho YEN 183.4 billion
SMBC YEN 176.8 billion
Sumitomo Mitsui Trust Holdings YEN 131.0 billion
BTMU YEN 111.2 billion
Total YEN 602.4 billion = US$ 5.3 billion

Toshiba is on notice for delisting by the Tokyo and Nagoya Stock Exchanges, and faces the risk of being delisted by March 15, 2017, i.e. in about 4 weeks from now.

Toshiba is trying to raise capital e.g. by seeking investment in the IC/flash memory division, however, Toshiba seeks to keep control, so Toshiba is trying to raise a minority share, or non-voting shares or similar, in order not to lose control.

How did Toshiba get into a situation to potentially need to write off US$ 6 billion?

Toshiba acquired 87% of the US nuclear equipment manufacturer Westinghouse.

While Westinghouse is a famous name, what Toshiba actually acquired seems to have gone through a period of restructuring.
For an analysis see “Westinghouse: Origins and Effects of the Downfall of a Nuclear Giant”, in the World Nuclear Industry Status Report: https://www.worldnuclearreport.org/Westinghouse-Origins-and-Effects-of-the-Downfall-of-a-Nuclear-Giant.html

In 2015 Toshiba acquired the construction company SHAW’s assets from the Chicago Bridge & Iron Company CB&I for US$ 229 million plus assumed liabilities. CB&I had acquired SHAW for US$ 3.3 billion in July 2012, and SHAW has on the order of US$ 2 billion annual sales.

Why did Toshiba acquire a company for US$229 million, which has US$ 2 billion annual sales, and which was in 2012 acquired for US$ 3.3 billion? Which factors reduced the value of this company from US$ 3.3 billion to US$ 229 million within the 3 years from 2012 to 2015?
Presumably because there are large liabilities arising from nuclear construction, which Toshiba now seems to have to assume.

Cost overruns and delays are not uncommon in the nuclear industry. Similar issues happened with a Finnish nuclear reactor recently, see: https://en.wikipedia.org/wiki/Olkiluoto_Nuclear_Power_Plant

What is likely to happen now with Toshiba? Is Toshiba too big to fail?

Difficult to say what will happen. Toshiba is a huge corporate group with about 200,000 employees and many factories in many countries, so clearly Toshiba is not going to disappear without trace.

The immediate risk is that Tokyo Stock Exchange carries out its warning, and delists Toshiba, which will further increase Toshiba’s ability to raise capital. In the case of a delisting, private equity, and/or government might invest and restructure, and Toshiba might be split up. For example, Toshiba’s nuclear Westinghouse division is totally separate from its very successful flash memory division, there is not much business logic in having both under one holding company.

Impact on UK

Toshiba acquired 60% of UK based NuGeneration with the view to build nuclear power stations in the UK. This project requires Toshiba to contribute to the funding of the nuclear project, for which Toshiba would probably need a financially healthy partner.

What is the big picture? How did Toshiba get into this crisis?

Toshiba’s crisis has been building up for 20 years, and is in my view a consequence of corporate governance issues over a long time.

Essentially, Toshiba should have been reformed 20 years ago from the top down.

Japan’s 8 electronics giants have had essentially no growth and no profits for 20 years. This tragedy has been obvious for many years now, and was a big contributing factor for Japan’s government to reform Japan’s corporate governance laws and regulations, see:

Toshiba’s Board of Directors was exchanged in September 2015, and now includes several very capable and experienced Japanese independent Board Directors, but unlike Hitachi, even today neither Toshiba’s Board of Directors, nor Toshiba’s Executive Board include one single foreigner. 

One might think that a huge global group like Toshiba with complex businesses around the globe might benefit from a variety of view points and experiences from different countries at Supervisory Board and Executive Board level – not all just from one single country. Japanese corporations including Hitachi, SoftBank, Nissan and a small number of others are now recognizing the benefits of diversity of experience and viewpoints at Supervisory Board and Executive Board level.

We can only hope that Toshiba’s executives and Board Directors have the experience and ability to solve the extremely complex issues deep inside the bowels of the US nuclear construction industry – far away on the other side of the world.

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Mobile internet’s 17th birthday

The global mobile internet revolution started with Docomo’s i-Mode on February 22, 1999

The global mobile internet revolution started with Docomo’s i-Mode on February 22, 1999

i-Mode, Happy Birthday!

Today, exactly 17 years ago, on February 22, 1999, NTT-Docomo launched the world’s first mobile internet service, i-Mode, at a press conference attended only by a handful of people.

NTT-Docomo created the foundation of the global mobile internet revolution, and i-Mode is still a cash-cow for Docomo in Japan, but Docomo did not succeed to capture global value.

i-Mode pioneered many business models, which are today monetized by Apple and Google (mainly via Android).

i-Mode also contributed to make Japan the world’s biggest App market in terms of cash revenues, and helped Japanese app companies to be among the world’s largest and top grossing.

Read in detail in our blog:
i-Mode was launched Feb. 22, 1999 in Tokyo – birth of mobile internet

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SHARP and the future of Japan’s electronics

SHARP and the future of Japan’s electronics

SHARP is in the news, but its about Japan’s US$ 600 billion electronics sector

The need for focus and active portfolio management

SHARP, supplier of displays to Apple, faces repayment of about YEN 510 billion (US$ 4.2 billion) in March.

Innovation Network Corporation of Japan INCJ (産業革新機構) and Taiwan’s Honhai Precision Engineering (鴻海精密工業) “Foxconn” compete for control of SHARP.

While SHARP makes headlines, the big-picture issues are:

  1. corporate governance reforms in Japan
  2. the future of Japan’s US$ 600 billion electronics sector, which dominated world electronics in the 1980s but failed to keep up with the evolution and growth of global electronics.

To survive Japan’s old established electronics conglomerates have two choices:

  1. focus on a small number of key products (remember Apple CEO Tim Cook showing that all of Apple’s products fit on one small table)
  2. actively managed portfolio model

however, for Japan’s economy to prosper, Japan needs many more young fresh new companies in addition to the old established conglomerates.

Interviews for BBC-TV and French Les Echos

Last week I was interviewed both live on BBC-TV and also by the French paper Les Echos about SHARP’s future:

In summary, I said that its not just about SHARP’s current predicament, but its about corporate governance reform in Japan, about reinventing Japan’s electronics sector, and that its more likely at this stage that Japan’s Innovation Network Corporation (INCJ) will take control SHARP, since INCJ is not just concerned with SHARP but with the bigger picture of restructuring Japan’s electronics sector.

INCJ has concepts for combining SHARP’s display division with Japan Display, and has plans for SHARP’s electronics components divisions, and for the white goods division, and other divisions.

SHARP governance: How and why did SHARP get into this very difficult situation?

SHARP is a poster child for the urgent need for corporate governance reform in Japan.

Essentially SHARP assumed that the world market for TVs and PC displays will continue to demand larger and larger and more expensive display sizes, and thus took bank loans to build a very large liquid crystal display factory in Sakai-shi, south of Osaka.

In addition, SHARP, has a huge portfolio of many different products ranging from office copying machines and printers and scanners, mobile phones, high-tech toilets, liquid crystal displays, solar panels, and hundreds of other products. SHARP keeps adding new product ranges constantly expanding its portfolio of businesses, and rarely sells loss making divisions.

Effective and strong independent, outside Directors on the Board might have asked questions during the decision making leading to the building of the Sakai factory. They might have asked for a Plan B, in case the global display market takes a turn away from larger and larger and more expensive displays, or if the competition heats up and prices start decreasing, they might have asked about SHARP’s competitive strengths, they might have also questioned the wisdom to finance an expensive factory via short-term bank loans as opposed to issuing shares to spread the risks to investors.

Its not just outside Directors, shareholders could have also asked such questions.

SHARP has about YEN 678 billion (US$ 5.6 billion) debt, most is short-term debt, and in a few weeks, in March 2016, SHARP needs to repay about YEN 510 billion (US$ 4.2 billion), and needs to find this amount outside.

SHARP is a Japanese electronics company, founded in 1912 by Tokuji Hayakawa in Tokyo as a metal workshop making belt buckles “Tokubijo”, and today one of the major suppliers of liquid crystal displays for Apple’s iPhones, iPads and Macs.

SHARP today has about 44,000 employees, many factories across the globe, sales peaked around YEN 3000 billion (US$ 30 billion) in 2008, and show a steady downward trend since 2008.

Revenues (profits) peaked in 2008, and have fallen into the red since.

SHARP's revenues (sales) peaked in 2008, and since then stagnated around YEN 3000 billion (US$ 30 billion), and show a downward trend ever since
SHARP’s revenues (sales) peaked in 2008 around YEN 3000 billion (US$ 30 billion), and show a downward trend ever since
Averaged over the last 14 years, SHARP shows average annual net losses of around YEN 38 billion per year (US$ 380 million per year)
Averaged over the last 14 years, SHARP shows average annual net losses of around YEN 38 billion per year (US$ 380 million per year)

What future for SHARP? Focus vs portfolio company

SHARP (or rather, its creditors, the two “main banks” Mizuho and Mitsubishi-Tokyo-Bank, and others controlling the fate of today’s SHARP) needs to decide whether it focuses on a group of core products, in which case it needs to be No. 1 or No. 2 globally for these products. Successful examples are Japan’s electronic component companies.

Or on the other hand, SHARP could be a portfolio company, in which case this portfolio must be actively managed.

What future for Japan’s US$ 600 billion electronics sector?

Japan’s 8 large electronics conglomerates:

  • Hitachi
  • Toshiba
  • Fujitsu
  • NEC
  • Mitsubishi Electric
  • Panasonic
  • SONY
  • SHARP

combined have sales of about US$ 600 Billion, similar to the economic size of The Netherlands, but combined for about 15 years have shown no growth and no profits. They are poster children for the urgent need for corporate governance reform in Japan.

These 8 electronics conglomerates are portfolio companies, and they need to manage these portfolios actively, such as General Electric (GE) or the German chemical industry are doing. Germany’s large chemical and pharmaceutical industries started active and drastic product portfolio management in the 1990s, and are continuing constant and active portfolio optimization via acquisitions, spin-outs, and other M&A actions, and so is GE.

A stark contrast are Japan’s very successful, profitable and growing electronics component companies.

Innovation Network Corporation of Japan INCJ (産業革新機構)’s dilemma

INCJ aims “to promote the creation of next generation businesses through open innovation” according to its website.

Japan’s NIKKEI financial daily mentions INCJ’s dilemma, whether attempting the rescue of an old conglomerate is compatible with its mission to create next generation business through open innovation.

Why “let zombie companies die” is beside the point

Concerning SHARP some media wrote headlines along the lines of “let zombie companies die”. Thats easy to write, however, SHARP is a group with 44,000 employees, many factories, about US$ 30 billion in sales annually.

“Let this zombie die” is not an option, SHARP has 100s of products, and divisions, and the best solution for each of these divisions is different. And that is exactly what the Innovation Network Corporation of Japan seems to be considering in its plans for SHARP.

I think the way forward is not “to let zombies die”, but to develop private equity in Japan

I think the move of Atsushi Saito, one of the key drivers of Japan’s corporate governance reforms, from CEO of Tokyo Stock Exchange/ Japan Exchange Group, to Chairman of the private equity group KKR is a tremendously important one in this context.

Will there be native Japanese private equity groups with sufficient know-how and ability to take responsibility of restructuring Japan’s electronics sector? Thats maybe the key question.

Why its not really about nationalism

Some media bring a nationalist angle into SHARP’s issues. However, Nissan was rescued by French Renault, UK’s Vodafone acquired Japan Telecom, and there are many other examples, where foreign companies acquire Japanese technology companies.

I don’t think nationalism is an issue here. The key issues is to create and implement valid business models for Japan’s huge existing electronics sector, and more importantly, create a basis for the growth valid new companies – not just reviving old ones.

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How big is Dentsu? US$ 37 billion, or US$ 19 billion or US$ 6 billion sales/year?

How big is Dentsu? US$ 37 billion, or US$ 19 billion or US$ 6 billion sales/year? Dentsu dominates Japan’s media sector and advertising

Dentsu dominates Japan’s media sector and advertising

Dentsu switches from JGAAP to IFRS accounting standards with big impact on KPIs

Dentsu dominates Japan’s advertising and media industries, and attracts some of the most creative Japanese talent, although Dentsu is not the first advertising agency in Japan – that priority belongs to Hakuhodo.

From April 1, 2015, Dentsu decided to switch to IFRS accounting standards from Japan’s JGAAP standards. For FY2014, Dentsu reports financial results both using IFRS and JGAAP standards, giving us the fascinating opportunity to compare both accounting standards for a major corporation.

So how big is Dentsu? For FY 2014 (April 1, 2014 – March 31, 2015) Dentsu reports (we have rounded the figures):

  • Turnover (IFRS) = ¥ 4642 billion (=US$ 37 billion)
  • Net Sales (JGAAP) = ¥ 2419 billion (=US$ 19 billion)
  • Revenues (IFRS) = ¥ 729 billion (=US$ 6 billion)

For operating income, net income and other data IFRS and JGAAP measure quite different KPIs.

Disruption is on the way: CyberAgent based on blogs, Recruit based on classified advertising and HR, LINE based on sticker communications, and many more…

How big is Dentsu? US$ 37 billion, or US$ 19 billion or US$ 6 billion sales/year?
How big is Dentsu? US$ 37 billion, or US$ 19 billion or US$ 6 billion sales/year?

Managing Japan/West cultural issues via the Dentsu-Aegis-Network

As for many Japanese corporations, Dentsu’s challenge is to leverage a dominating position in Japan into a global business footprint, while managing the well-known cultural issues. Dentsu’s approach was to acquire the French/UK agency Aegis, and then via Dentsu-Aegis acquire a string of agencies all over Europe:

Dentsu and Dentsu-Aegis

Dentsu dominates Japan’s advertising space, and is a very very strong force in Japan’s media industry sector, through control and management of major advertising channels with an overwhelming market share in Japan, and has been working hard to leverage its creative power and strength in Japan into a larger global footprint.

A big step forward towards a larger global footprint for Dentsu was the acquisition of the London based Aegis Group, announced on July 5, 2012.

Read our report on Japan’s Media Landscape

(12th edition of July 21, 2015, approx. 200 pages, pdf file)
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Japan in 2015 – analysis

Japan in 2015 - analysis

Thoughts and analysis for 2015

Abenomics?!

The trick of course is the third arrow, the reforms. Read what Professor Takeo Hoshi has to say about Abenomics, Japanese economist, who has worked his way up US Universities, and has now reached the position of Professor of Economics at Stanford University. By the way, here is my talk at Stanford University – some years ago, but much of it still applies today.

Japan’s energy

Japanese people’s views on nuclear power are polarized, and its unclear and unpredictable when nuclear power stations will be switched on again in Japan. Read what the Governor of Niigata Prefecture has to say, who hosts the world’s largest nuclear power plant with 7 reactors and 8 GigaWatt capacity.

According to the Japanese Energy Fundamental Law, the Government has to publish an official Energy Basic Plan at regular intervals. You can read the 4th Energy Basic Plan published on April 11, 2014, and listen to a commentary on it for The Economist here on YouTube. The 4th Energy Basic Plan starts with the assumption that Japan is poor in natural energy resources, which of course is only true if we restrict “natural energy resources” to fossil resources. Japan is actually potentially very very rich in renewable energy sources, as the scenario plans developed by Japan’s Industry and Economy Ministry (METI) and Japan’s Environmental Ministry show.

Solid state lighting saves energy

GaN LEDs were invented and commercialized in Japan, and Shuji Nakamura, Isamu Akasaki and Hiroshi Amano won the 2014 Nobel Prize in Physics for this work. Read the summary of Shuji Nakamura’s keynote at the 5th Ludwig Boltzmann Forum.

Post-Galapagos and globalization of Japan’s technology groups

To overcome Japan’s Galapagos issues and to acquire technologies and market access, Japanese companies are acquiring overseas: read a list of Japanese acquisitions in Europe here.

Foreign companies in Japan, and Japanese companies overseas face a dilemma: expensive expatriates with limited local know-how, or local management? Japanese companies seem to have finally reached the conclusion that Japanese managers eg sent to Germany are in most cases not the best choice to lead a German-based multinational company – here are some great recent examples:

  • Docomo acquires a majority stake in net mobile AG, however net mobile AG remains a publicly listed company. Read details here.
  • NTT DATA acquires SAP solution provider itelligence AG, however itelligence AG remains an independently managed company under the founder’s management, and grows aggressively via acquisitions all over the globe. Read details here.
  • NTT Communications acquires a majority of Integralis, Integralis is renamed NTT Com Security AG, however NTT Com Security AG remains traded on the m:access market of the Munich Stock Exchange. Read details here.

Carlos Ghosn is very well aware of such multi-cultural management issues and how to solve them, however too many EU companies in Japan are not. If they were, EU investments in Japan could be at least 50% higheras you can read here.

Best wishes, and much success in 2015!

Copyright·©2015 ·Eurotechnology Japan KK·All Rights Reserved·

ApplePay vs Osaifu-Keitai – CNBC interview

Gerhard Fasol CNBC

ApplePay is expected to start in October 2014 – Docomo’s Osaifu-keitai wallet phones started on July 10, 2004.

Mobile payments Japan, e-money and mobile credit (200 pages, pdf file):
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In business the first-comer does not always win the game

Japan’s NTT-Docomo tested two types of wallet phones, manufactured by Panasonic and SONY with 5000 customers between December 2003 and June 2004, and introduced mobile payments and wallet phones on July 10, 2004 – over 10 years ago.

ApplePay therefore could be developed based on over 10 years of experience with mobile payments in Japan. ApplePay is expected to be introduced for the USA market in October 2014, and we can expect Apple to introduce ApplePay to other markets including Japan in due course.

It will be particularly interesting to see how ApplePay and the already established mobile payment and NFC payment ecosystems in Japan will integrate.

For detailed analysis read our reports:

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Apple Pay vs Japan’s Osaifu-keitai – the precursor to Apple Pay

Mobile Payment Forum and Eurotechnology Japan KK jointly organize the Mobile Payment Forum meeting in Tokyo

What can we learn from 10+ years of mobile payments in Japan?

Apple Pay vs Japan’s Osaifu-Keitai: watch the interview on CNBC

Mobile payments Japan, e-money and mobile credit (200 pages, pdf file):
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Japan’s Osaifu keitai mobile payments started on July 10, 2004, after public testing during December 2003 – June 2004

Two different types of Docomo‘s “Osaifu-Keitai“, manufactured by Panasonic and by SONY, were publicly tested by 5000 customers between December 2003 – June 2004. Docomo’s Oseifu keitai mobile payment system builds on SUICA NFC stored fare cards, which JR-East brought to market in Tokyo on November 18, 2001, after long years of development and public testing, where the author of this newsletter was one of the testers.

Apple-Pay was developed building on almost 15 years of NFC payments in high volumes in Japan

Therefore, those who wish to make predictions about how the Apple-Pay market is likely to develop can use the experience gained during 15 years in Japan.

There are also some open questions, which will probably be answered after we can all check out Apple-Pay after September 19, 2014. One point which is very important is the speed of transactions – especially in transport applications such as the London or Tokyo Subways – read about this in the next section of this newsletter below.

Read more below, and in our reports on mobile payments and electronic money in Japan:

The speed of NFC mobile payments – and why does it take 10 years to reinvent the wheel?
and: what is the speed of Apple-Pay transactions?
faster than 100 milliSeconds? or 500+ milliSeconds?

On July 17, 2012 The Wallstreet Journal reported, that as far as Transport for London is concerned, there is no viable mobile payment solution available at this time, because to the knowledge of Transport for London at that time, mobile payment transactions take longer than 500 milli-seconds, which is too slow for Transport for London requirements (e.g at Picadilly station during the rush hour).

Interestingly, in Japan “mobile SUICA” payments have been used in Tokyo successfully since January 28, 2006 at the world’s busiest railway stations including Shinjuku and Shibuya – arguably more busy than Piccadilly Circus in rush hour, with transaction speeds faster than 100 milli-seconds – according to The Wallstreet Journal, London Transport did not even know about this.

Read in more detail about this issue in our blog here: “Mobile payments: 10 years to reinvent the wheel?

Therefore one obvious question we have about Apple-Pay is whether the speed of Apple-Pay transactions is in the 500+ milli-second range – unacceptable for Transport for London, or faster than 100 milli-seconds – as is Tokyo’s state of the art since January 28, 2006…
I guess we will soon learn the answer to this question.

Why is it that Japan does not capture the global value which Apple and Apple-Developers will create and capture now?

Japan developed mobile payments, e-cash, credit cards in mobile phones and at least as much functionality as Apple-Pay and an open API and a mobile payment and e-cash developer ecosystem over the last 10-15 years.

Why does Japan leave all the global value on the table for Apple and Apple developers?

Actually, I personally had discussions over the last 15 years will all major players in Japan’s mobile payment and e-cash field, crowned by 1-1 discussions with Docomo’s CEO at that time – Dr. Tachikawa – I wrote about one of these meetings in The Wallstreet Journal, of course without mentioning the details: “Wallstreet Journal leadership question of the week – Japanese leadership“.

Essentially my conclusion at that time, and today is, that Japanese companies never showed any interest at all in developing global business to capture the global value of mobile payments, e-cash and the related businesses. Japanese companies did not even try, and were not even interested in discussing the globalization of mobile payment and e-cash technologies and business models.

You can read about Japan’s Galapagos issues here:

All opportunities are not lost of course for Japanese companies in the mobile payments and e-cash fields, but most if not all of Japan’s early-mover advantage has evaporated with Apple-Pay.

In business, sometimes the second or third mover can be commercially more successful than the first mover, and it will be very very hard even for a united Japan Inc to stand up to Apple.

Apple Pay vs Japan’s Osaifu-Keitai: watch the interview on CNBC

Mobile payments Japan, e-money and mobile credit (200 pages, pdf file):
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Copyright (c) 2014 ·Eurotechnology Japan KK All Rights Reserved

Steve Jobs and SONY: why do Steven Jobs and SONY reach opposite answers to the same question: what to do with history?

Steve Jobs and SONY: why 180 degrees opposite decisions?

Steve Jobs donates history to Stanford University in order to focus on the future

Steve Jobs and SONY – when Steve Jobs when returned to Apple in 1996, and now SONY are faced with the same question: what to do about corporate archives and the corporate history museum? Interestingly Steve Jobs, and SONY reach exactly 180 degrees opposite answers to the same question:

  • Steve Jobs donates Apple corporate archives and company museum to Stanford University
  • SONY sells headquarters building, and keeps SONY corporate archives and company museum

Why opposite answers to the same question? Could it be good advice for SONY, to learn from Steve Jobs, and donate SONY-Museum and SONY-Archives to a University, and focus much more on the future?

Apple donates history collection to Stanford University:

Steve Jobs returned to Apple with the Apple purchase of NeXT on December 10, 1996. One of the first things Steve Jobs did was to orient the Apple into the future by donating the Apple Computer Inc. Museum and historical collections to Stanford University, as documented in Stanford University’s news release dated November 18, 1997. Apple’s archives are now at Stanford University’s Silicon Valley Archives.

Steve Jobs gave away Apple’s history documents in order to focus on the future.

SONY sells headquarters buildings but keeps SONY Archives and SONY Corporate History Museum:

SONY’s actions are almost exactly 180 degrees opposite to Apple’s and Steve Jobs’: according to Wallstreet Journal, The Japan News by Yomiuri, and other news sources, SONY sells the former headquarters buildings, but reports say that SONY will keep the SONY Archives and the SONY Corporate History Museum (ソニー歴史資料館).

To understand SONY’s financial situation over the last 15 years, read our Report on Japan’s electronics industry.

Why does Steve Jobs reach the 180 degrees opposite conclusion to SONY management when faced with the same question?

  • Is this a manifestation of Japan’s “Galapagos syndrome”?
  • Could this mean that SONY isn’t as forward looking as Steve Jobs when he returned to Apple in 1996?
  • Could it be good advice for SONY, to donate SONY-Museum and SONY-Archives to a University, and instead focus on the future?

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Japan’s Galapagos Effect

Gerhard Fasol Eurotechnology.com

How Japan can capture global value from its innovations

Dr. Gerhard Fasol dissects the history behind Japan's unique international market separation

By Hugh Ashton

Originally published both in the print and online editions of the ACCJ Journal (Journal of the American Chamber of Commerce in Japan) on January 15, 2011 in “Chamber Events” based on a talk given by Dr. Gerhard Fasol to the Members of the American Chamber of Commerce (ACCJ) on July 12, 2010, at the Westin Hotel, Tokyo.

Background reading: Japan’s telecommunications industry landscape

(c) 2011 Copyright by The American Chamber of Commerce in Japan (ACCJ).
Reproduced with kind permission of ACCJ.

Dr. Gerhard Fasol, the founder and CEO of Eurotechnology Japan KK, spoke to ACCJ members about Japan’s “Galapagos Effect” at the Westin Hotel in Tokyo. The “Galapagos Effect,” for those unfamiliar with the term, is used to describe Japan’s unique culture of technology that has not expanded beyond Japan’s borders, in the same way that the Galapagos Islands exemplify unique evolutionary developments in nature.

Dr. Gerhard Fasol
Dr. Gerhard Fasol, CEO of Eurotechnology Japan KK

Where Japan Leads

Investment is a prime reason why such developments as Internet-related mobile communications are so advanced in Japan. As Fasol pointed out, Japan has seven times the number of 3G base stations as the United Kingdom. Many of the related technical developments in mobile handsets that are only just coming onto the market outside Japan have been standard for many years in this country—Fasol gave high-quality camera phones as an example.

Quoting a Nokia spokesman, he claimed one reason for this leap was that Europe is conservative in regards to standards, which take a long time to develop and ratify in contrast to Japan. He amplified the Galapagos analogy by stating, “Japan is a Galapagos island, and doesn’t have to care about standards.”

Fasol also claimed that Japan is 10 to 15 years ahead of other nations in its use of electronic money. He contrasted Europe’s fragmented and overly bureaucratic nature with Japan’s, where large decisions—such as
i-Mode and Suica—can be made by a mere two or three people, which may come as a surprise to those who see Japan as a bureaucratic nightmare.

The reverse side of the Galapagos effect, however, is that Japanese phones designed for the home market fail to find buyers outside Japan. Electronic money is another area where Japanese technology seems destined to remain within the borders of Japan, despite the fact it is now quite common and accounts for a relatively large proportion of currency in circulation at about two percent. Fasol claimed that the U.S. and Europe are not yet ready for the mass introduction of such a payment system like Japan. In the long term, he believes, non-Japanese global giants will probably win out over the Japanese innovators.

Shedding Light on Genius

Another area where Japan has led innovations in the commercialization of technology is the revolution in lighting, which is poised to offer new environmentally-friendly illumination options. Based on the invention of the blue LED by Shuji Nakamura, the new lighting systems are also wallet-friendly in that they offer a 6,000-fold advantage in terms of price for the same amount of light over kerosene-powered lighting, still a staple in many parts of the world.

However, Nakamura was largely ignored by the Japanese business community; he is not even named on the website of the company that employed him (Nichia), and is now working at a university in California—Tokyo University claimed they wanted more “ordinary professors.” According to Fasol, the “Galapagos effect” means that there is no room or need for geniuses like Nakamura in Japan.

Economy

Up to 1995, Japan’s economy was growing, but is now static, a unique situation within the G8. Indeed, extrapolated from present trends, South Korea’s economy could overtake Japan’s in 2022.

Japan has a huge electronics sector, from giants to smaller specialist makers with a $600 million market about the same as the Netherlands. However, the growth is almost zero compared with that of 10 years ago. The net income of the top 20 companies of the sector is actually less than that of a single U.S. company, GE or of Korean rival, Samsung. This has a disadvantageous effect on pension funds, who are the major shareholders of these companies, but the governance of Japanese corporate affairs by shareholders is much less than, say, in the U.S. Still, Japan enjoys a very large national market (unlike the UK, for example), which can help companies survive. On the other hand, this may have prevented companies from “going global” as their internal market has reached saturation. Fasol mentions rice cookers as an example of a consumer durable that is not purchased frequently, and accordingly has a relatively small and finite market footprint. Even so, every major electrical manufacturer designs and produces a range of rice cookers, with a very low profit margin of well under one percent, which may be part of the legacy of the zaibatsu (the large pre-war conglomerates). This legacy means that most present-day conglomerates feel the need to do everything—for instance, there are three global makers of trains, but ten in Japan.

The Galapagos Study Group

Fasol then went on to describe the 26-person interdisciplinary Galapagos Study Group—of which he was the only non-Japanese member—which met monthly for a year and concentrated on the mobile phone industry.

The results of these meetings were summarized in three sets of recommendations to telecom carriers, electrical manufacturers, and content companies, with the second category receiving the recommendations that Fasol described as most radical.

He surprised his listeners by saying, “I think it would be best for Japan if in five years or so there were no more Hitachi, or Fujitsu, or Toshiba.” This, of course, was not meant as a direct attack on these specific companies, but as an attack on their conglomerate nature. Instead of the current state, he suggested a move towards smaller companies, focused on profitable businesses, would be preferable and would restart growth.

On the content side, Fasol claims that Japan is the only country in the world with the intellectual and creative resources to create characters that can stand up to Mickey Mouse and the Disney empire, but has not succeeded in creating global businesses based on Pikachu or Doraemon. Accordingly, the committee made a recommendation that platforms similar to Disney be created in order to create global businesses using such characters.

Dr. Gerhard Fasol
Dr. Gerhard Fasol, CEO of Eurotechnology Japan KK

Coming to Japan from the Outside

On the subject of breaking into “the Galapagos market,” Fasol pointed out that good foreign companies can succeed in Japan if they know the market. As an example, he cites traffic lights, whose specifications in Japan are controlled by the police. Any company failing to recognize this kind of local quirk, no matter what its global standing, is doomed to failure when it comes to Japan. Examples of dramatic failures he cited were Nokia, Nasdaq, and Vodafone. To paraphrase the traditional real estate tag, Fasol claimed that the three biggest mistakes foreign companies coming to Japan make are “arrogance, arrogance and arrogance.” He claimed that this has nothing to do with Japan’s closed markets, quoting the iPhone’s success as an example.

He pointed out that there are other reasons for the failure of foreign entrants. Apart from the failure to listen to customers and understand the market, reasons include partnership with the wrong joint venture partners, and the management of Japanese ventures by managers who fail to understand the country.

However, the Japanese service lifestyle, allied with what he terms a “fashion society,” is a great opportunity for outsiders to break into the Galapagos market, and Fasol claimed that foreign companies can tap Japan’s creativity and use it to their advantage.

He also claimed that the relative isolation of Japan from global standards and practices in some cases actually enriches the global experience. But at the same time this also introduces life-threatening issues for Japan and this isolation must be addressed through two-way dialog from inside and outside of Japan.

(c) 2011 Copyright by The American Chamber of Commerce in Japan (ACCJ).
Reproduced with kind permission of ACCJ.


Download Gerhard Fasol’s lecture slides at Stanford University: “New opportunities vs old mistakes – foreign companies in Japan’s high-tech markets”

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Read more about Japan’s “Galapagos effect” here:

Japan Galapagos effect (Galapagos syndrome)

eurotechnology.com

Japan Galapagos effect

Globalizing Japan

On the Galapagos islands, Charles Darwin noticed a number of species which were extremely beautiful, had evolved on the Galapagos islands locally, and were not able to live anywhere else.

Similarly, due to language, culture, comparatively small interchange between Japan’s markets and foreign markets, some technologies and some products evolved in Japan differently than in other markets.

In part, Japan chose unique Japanese technology standards (e.g. PDC and PHS for mobile phones, 1-seg for mobile TV, FeliCa for RFID contactless and mobile payments) in the hope to achieve global adoption of these Japanese standards, and at the same time to make market penetration of Japan’s markets more difficult for foreign companies in these fields – thus giving an competitive advantage to Japanese companies in their home market Japan.

Japan Galapagos effect: Telecom industry

Japan’s telecommunications industry for a long time used wireless communication standards, and mobile data standards, and frequency bands quite different than those used in other parts of the world. This had several effects:

  • Foreign companies hoping to enter Japan’s market, had to invest and develop mobile phone and other equipment specifically for the Japanese market, which could not be marketed anywhere else. Thus competing Japanese mobile phone makers and base station makers had a (temporary) competitive advantage in their home market, Japan. However, because of Japan’s limited market size, this competitive advantage in their home market seduced these Japanese companies to neglect global business development. As R&D costs, and especially software development costs increased, lack of global scale made it more and more difficult for these companies to continue viable business.
  • Because of high investments, and the will of consumers to spend large amounts on mobile communications, and because of Japan’s innovative power and other factors, many mobile technologies and business models were invented in Japan, or came first to market in Japan. These include:
    • camera phones
    • mobile internet (i-Mode)
    • mobile payment
    • commercial 3G mobile broadband services
  • Japanese handset makers and mobile phone base station makers were until recently protected in Japan’s market, Japanese mobile phone operators preferentially purchased Japanese equipment. Japanese mobile phone handset makers and base station equipment makers were not able to compete in the much larger global market.
  • Necessary consolidation did not take place, so Japanese mobile phone handset makers and base station equipment makers did not scale globally.

As a direct consequence of the Galapagos issues, NEC recently decided to exit the production of smartphones – NEC was the former No. 1 leader in Japan’s mobile phone market.

Japan Galapagos effect: Galapagos phones (Galake, ガラケ)

Japan introduced mobile internet in February 1999, much earlier than any other country. “Galapagos phones” (Galake, ガラケ) are mobile phones (“feature phones”) typically based on the legacy Symbian operating system, and including a very rich set of features:

Galapagos-phones are losing market share against iOS/iPhone and Android smartphones, and we expect Galapagos-keitai (galake) to disappear from the market within a few years to be replaced by iOS, Android, and other smartphones.

As a consequence of the Galapagos effect, NEC recently decided to exit the field of smartphones, and focus exclusively on “Galake” type feature phones.

Japan Galapagos effect: Automotive industry

Kei car, K-car, 軽自動車 (meaning “light automobile”) is an automotive class, which exists only in Japan. Kei-cars enjoy tax advantages, and Japanese automobile manufacturers are creating very innovative and attractive Kei-cars, however this class of automobile is only restricted to Japan at this time, and cannot achieve global scale at this time.

Positive aspects: Japan Galapagos effect as an opportunity

Mobile internet, electronic money, camera phones and many other advanced technologies were invented and/or first brought to market in Japan, earlier than in all other countries, because of the positive aspects of the Galapagos effect. Japanese companies could develop and bring these new products to market without being slowed down by global standards. Creativity can run free in Japan because of Japan’s Galapagos effect.

Japan post-Galapagos effect working group

The “Post-Galapagos working group” was organized by Takeshi Natsuno (one of the three developers and long-years manager of DoCoMo’s i-Mode mobile internet service) during the years 2008-2009.
The Post-Galapagos working group consisted of about 15 Committee members (Gerhard Fasol was the only non-Japanese Post-Galapagos working group member), met once a month for about one year, and in mid-2009 prepared an released a set of reports with recommendations for

  • Japan’s telecom operators
  • Japan’s electronics manufacturers
  • Japan’s contents industries

A Japanese article about the Post-Galapagos working group can be found here:
超ガラパゴス研究会リポート:海外目線で見る、日本のケータイメーカーの弱点とは
And an English language article here:
ACCJ-Journal: The Galapagos Effect

Japan Galapagos effect – References

Download Gerhard Fasol’s lecture slides at Stanford University: “New opportunities vs old mistakes – foreign companies in Japan’s high-tech markets”

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Copyright (c) 2013 Eurotechnology Japan KK All Rights Reserved

Will cash become obsolete?

Gave presentation to the Telecommunications Committee of the American Chamber of Commerce in Japan (ACCJ) on October 7, 2009, entitled “Will cash become obsolete? E-money, mobile payments and mobile commerce”.

Talk was attended by about 30-40 executives from major global telecom operators, global banks, new-age payment companies, and from major internet companies.

Outline:

What is money?

  1. Medium of exchange
  2. Unit of account
  3. Store of value
  4. (Standard of deferred payment, unit for debt)

e-Cash value to society:

  • reduced cash handling costs
  • Higher transaction speed
  • Convenience
  • Greater security (especially mobile) vs. reduced privacy

Why should be care? (Summary)

  • Electronic money is here to stay
  • One e-money card/Japanese person
  • 2% of banknotes and coins today
  • YEN 100 billion outstanding
  • YEN 100 billion transactions/month
  • Japan is far in advance, rest-of-world is likely to follow. But can Japan capture the value? maybe not.
  • However: “Galapagos syndrome

More information in our reports:
Mobile payments, e-money and mobile credit in Japan
SUICA and NFC payment for transport
QR codes are also used for payment

Why are keitai so hot in Japan?

Gerhard Fasol at Stockholm School of Economics

Innovations in Japan’s mobile phone sector

Why is Japan’s telecommunications sector leading?

Seminar announcement

The European Institute of Japanese Studies (EIJS Academy in Tokyo) of the Stockholm School of Economics will hold a seminar in Tokyo-Marunochi on Thursday, February 16, 2006:

Topic: “Why are Mobile Phones (Keitai) so hot in Japan? – and How European companies in all sectors can profit from Keitai”

Speaker: Gerhard Fasol

Gerhard Fasol "Why are keitai so hot in Japan?" Embassy of Sweden
Gerhard Fasol “Why are keitai so hot in Japan?” Embassy of Sweden

Agenda:

Japan created the most passionate and most advanced mobile communications (keitai) market in the world. Recently, almost all innovations in mobile communications have been developed or brought to market first in Japan. Fasol’s talk will explain why this is, and how European companies in all fields, from retail to publishing can profit by building keitais into their business models.

Date: Thursday, February 16, 2006
Time:

6.15 – 7.00 p.m. Drink and Snack (served before the lecture)

7.00 – 9.00 p.m. Lecture and Discussion

Place:
Marubiru Conference Square, Room 2 (Tel: 03-3217-7111)
8th floor of Marubiru, 2-4-1 Marunouchi, Chiyoda-ku, Tokyo
One-minute walk from JR Tokyo Station, Marunouchi South Exit

Fee: JPY2,000 per person, payable at the door
Free for students, please bring your student ID
Free for those who are from sponsoring companies

Advance registration required: Please sign up (via email) or fax to (FAX 03-3212-1530) for the attention of Ms. Futagawa (EIJS Tokyo Office.)

Japan telecommunications industry report – Preview an outline:

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Copyright·©2013 ·Eurotechnology Japan KK·All Rights Reserved·

Amazon.co.jp captures mobile purchases directly inside competing brick-and-mortar stores with barcode i-appli

Amazon.co.jp introduced a barcode reader i-Appli (JAVA application for DoCoMo’s i-Mode phones), with which shoppers in brick-and-mortar stores can directly compare the prices with Amazon.co.jp’s mobile webstore prices. If the shopper prefers, he/she can order directly by i-Mode mobile phone from Amazon.co.jp online while still standing in front of the shelves of the brick-and-mortar store.

With this barcode reading mobile phone application (i-Appli), Amazon.co.jp is directly taking the competition into brick-and-mortar stores, battling on the same ground.

User interface of Amazon.co.jp’s barcode reading i-Appli – click to scan:

With Amazon.co.jp's barcode scan application customers shopping in a store can compare prices with Amazon.co.jp's ecommerce prices, and if cheaper, can order from Amazon.co.jp directly
With Amazon.co.jp’s barcode scan application customers shopping in a store can compare prices with Amazon.co.jp’s ecommerce prices, and if cheaper, can order from Amazon.co.jp directly from the mobile phone

The customer can directly scan the barcode with his/her Docomo i-Mode phone, and the Amazon.co.jp barcode i-Appli:

Customer scans the barcode in a store using the Amazon.co.jp bar code application on a DoCoMo i-mode phone
Customer scans the barcode in a store using the Amazon.co.jp bar code application on a DoCoMo i-mode phone

On the next screen Amazon.co.jp’s i-Appli shows the same product’s page in the Amazon.co.jp mobile store. The customer can directly order with one click if he/she prefers Amazon.co.jp’s offer instead of the brick-and-mortar store, where he/she is currently shopping. This i-Appli allows Amazon.co.jp to catch customers from within traditional stores.

After scanning the barcode, the Amazon.co.jp i-appli directly shows the price and order page of the same product on the Amazon.co.jp mobile site
After scanning the barcode, the Amazon.co.jp i-appli directly shows the price and order page of the same product on the Amazon.co.jp mobile site

Read our QR-code report for in-depth analysis and lots of applications of QR-codes and bar codes in Japan.

New opportunities versus old mistakes: Foreign companies in Japan’s high-tech markets