1970s: overwhelmed with vertical integration and self-sufficiency
1980s: appreciation of the yen (1985 Plaza Accord)
1990s: collapse of the Bubble (1991), relocation of production to Asia, three excesses:
debt
facility
employment
2000s: lost 20 years
Going forward, Japan has the option of growth under new business models, or continue to stagnate with matured industries
While there is dramatic global market expansion in many business areas in the global electrical industry, e.g. for Lithium Ion Batteries, DVDs, Car navigation units, DRAM, Japan’s market shares are falling in most sectors. For example, Japanese market shares for LCD, DVD players, Lithium Ion batteries, or car navigation units have fallen from almost 100% global market share 5-10 years ago to 10%-20% today.
Restructuring mature industry can generate more economic benefit than innovating a new industry:
large established market, although low growth
reduced number of players in the market following consolidation
Revitalization of JVCKENWOOD
the current main business as the core – not new business
speed, like “fresh food”
eliminate hidden waste and loss costs
eliminate vested rights
Kenwood in 2002 was in a disastrous condition:
net income (loss): YEN -27 Billion (= US$ -270 million) losses
debt: YEN 110 Billion (= US$ 1.1 billion)
accumulated losses: YEN 45 Billion (= US$ 450 million)
net worth: YEN -17 Billion (= US$ -170 million)
Restructuring by March 2003:
Financial restructuring: Dept/equity swap. Moved from YEN 17 billion negative net worth to positive within 6 months
Business restructuring: focus on core business. Terminated cellular phone business.
Management restructuring: management consolidation. Eliminate huge wastes and losses in subsidiaries.
Restructuring in FY2003 achieved a V-shape recovery. Net income margin was improved from -8% in FY3/2002 to 2%-4% in recent years.
In mature markets, growth is achieved through M&A, reducing the number of players in the market. As the top player in the market, profitable growth improved:
Main four players in the car electronics after-market before Kenwood-JVC merger:
Pioneer
Kenwood
Sony
JVC
after the JVCKENWOOD merger, and restructure to minimize losses from the TV business:
JVCKENWOOD
…
…
JVC and KENWOOD formed a capital and business alliance in July 2007, followed by management integration in October 2008, and a full merger in October 2011. The business portfolio was restructured, and in particular big losses in the TV business were reduced. Fixed costs were reduced by 40% by selling off assets, reduction of production and sales sites, and 25% voluntary retirement.
This structural reform was completed in the FY3/2001, and led to another V-shaped recovery, and to profitable growth under the new medium term business plan.
The JVC-KENWOOD merger led to big jumps in market share in many markets, and thus to very much improved profitability.
How can Japan become competitive again?
Why did Japan’s mass production type electronics fail? Answer: Japanese management failed to deal with globalization and digitalization.
Other factors that contributed to Japan’s failure are vertical integration, technology leakage from exporting production facilities, insufficient added value compared to the high Japanese labor costs, and lack of money for investment, because Japanese companies largely relied on bank loans instead of equity.
Japan’s heavy electrical industry on the other hand is competitive – why?
Creative know-how in the heavy electrical industry is in human brains, therefore more difficult to leak to competitors under Japan’s employment circumstances.
huge capital investment is needed, and almost fully depreciated in Japan. Therefore the depreciation costs exceeds HR costs.
How can Japan become competitive again?
Japan needs to accelerate growth strategies in those areas, where Japan has competitive advantage, and where Japanese industries can differentiate themselves. Examples are industrial areas which depend on a long-term improvements and advanced technologies, and techniques of craftsmen, and in next generation technologies.
JVC KENWOOD takes action to innovate
JVCKENWOOD invested in a venture capital fund: the WiL Fund I, LP to reinforce alliances with potential ventures in Japan and overseas
JVCKENWOOD invested in ZMP Inc. to promote car telematics and car auto-control
Haruo Kawahara, Chairman of JVCKenwoodHaruo Kawahara, Chairman of JVCKenwood
Professor Kurokawa set the stage by describing the uncertain times, risks and unpredictabilities in which we live – while at the same time internet connects us all, all while the world’s population increased from about 1 billion people in 1750 to about 9 billion people today.
Major global risks in terms of impact and likelihood are (General Annual Conference 2013 of the World Economic Forum):
severe income disparity
chronic fiscal imbalances
rising greenhouse gas emissions
cyber attacks
water supply crisis
management of population aging
corruption
Top trends for 2014, ranked by global significance (World Economic Forum, Outlook on global agenda 2014):
rising social tensions in Middle East and North Africa
widening income disparity
persistent structural unemployment
intensifying cyber threats
diminishing confidence in economic policies
lack of values in leadership
the expanding middle class in Asia
This changing world needs a change of paradigm:
resilience instead of strength
risk instead of safety
Many recent “Black Swan events” bring home that:
accident happens
machine breaks
to err is human
Fukushima Nuclear Accident Investigation Commission NAIIC of the Japanese Parliament:
Professor Kiyoshi Kurokawa chaired the Fukushima Nuclear Accident Independent Investigation Commission (NAIIC) by the National Diet of Japan, which was active from December 8, 2011 to July 5, 2012. While Parliamentary commissions to investigate accidents, problems and disasters are quite frequent in most Western democracies, this was the first time ever in the history of Constitutional Democratic Japan, that a Parliamentary investigation commission was constituted.
Examples of Parliamentary commissions in other western democracies are:
Three Mile Island, USA 1979
Space Shuttle Challenger, USA 1986
9.11 Terrorist Attack, USA 2001 and many many many more in USA
Oslo’s shooting incident, Norway 2011
Mad Cow Disease, UK 1997-, and several Parliamentary commissions every year in UK
Fukushima Nuclear Accident Investigation Commission of the Japanese Parliament NAIIC key results: Fukushima nuclear disaster was caused by “regulatory capture”
The key result of the Parliamentary Commission is, that the Fukushima nuclear disaster was caused by “regulatory capture”, a phenomenon for which there are many examples all over the world and which is not specific to Japan. Regulatory capture was studied by Goerge J Stigler, who was awarded the Nobel Prize in 1982 for “for his seminal studies of industrial structures, functioning of markets and causes and effects of public regulation”.
Since the full report of the Independent Parliamentary Commission NAIIC is long and complex to read, few people are likely to read the full reports and watch the videos of all sessions.
Therefore short summary videos the key results of the Independent Parliamentary Commission NAIIC were prepared both in Japanese and in English.
The simplest explanation of The National Diet of Japan Fukushima Nuclear Accident Independent Investigation Commission NAIIC Report (English):
1. What is the NAIIC?
2. Was the nuclear accident preventable?
3. What happened inside the nuclear plant?
4. What should have been done after the accident?
5. Could the damage be contained?
6. What are the issues with nuclear energy?
わかりやすいプロジェクト 国会事故調編
１。国会事故調ってなに？
２。事故は防げなかったの？
３。原発の中でなにが起こっていたの？
４。事故の後対応をどうしたらよかったの？
５。被害を小さくとどめられなかったの？
６。原発をめぐる社会の仕組みの課題ってなに？
“Groupthink can kill”
We need leaders to be accountable, and we need to understand that “Groupthink” can lead to disasters.
We need the obligation to dissent instead of compliance.
The Nuclear Accident Independent Investigation Commission (NAIIC) was like a hole body CT scan of the Governance of Japan.
Richard Feynman when charing the Space Shuttle Accident investigation wrote in 1986: “for a successful technology, reality must take precedence over public relations, for nature cannot be fooled.
For his work chairing the Nuclear Accident Independent Investigation Commission (NAIIC) Professor Kurokawa was selected as one of “100 Top Global Thinkers 2012” by Foreign Policy “for daring to tell a complacent country that groupthink can kill”.
Professor Kurokawa was awarded the AAAS Scientific Freedom and Responsibility Award “for his courage in challenging some of the most ingrained conventions of Japanese governance and society.
“Japan is clearly living in denial, water keeps building up inside the plant, and debris keeps piling up outside of it. This is all just one big shell game aimed at pushing off the problem until the future”, New York Times, quotation of the day, September 4, 2013 Professor Kiyoshi Kurokawa
Professor Kiyoshi KurokawaProfessor Kiyoshi Kurokawa
(Gerhard Fasol, CEO of Eurotechnology Japan KK. Served as Associate Professor of Tokyo University, Lecturer at Cambridge University, and Manger of Hitachi Cambridge R&D Lab.)
Ludwig Boltzmann’s greatest contribution to science is that he linked the macroscopic definition of Entropy which came from optimizing steam engines at the source of the first industrial revolution to the microscopic motion of atoms or molecules in gases, this achievement is summarized by the equation S = k log W, linking entropy S with the probability W. k is the Boltzmann constant, one of the most important constants in nature, linked directly to temperature in the SI system of physical units. This monumental work is maybe Boltzmann’s most important creation but by far not the only one. He discovered many laws, and created many mathematical tools, for example Boltzmann’s Equations, which are used today as tools for numerical simulations of gas flow for the construction of jet engines, airplanes, automobiles, in semiconductor physics, information technology and many other areas. Although independently discovered, Shannon’s theory of noise in communication networks, and Shannon’s entropy in IT is also directly related to Boltzmann’s entropy work.
Ludwig Boltzmann, the leader
Ludwig Boltzmann was not only a monumental scientist, but also an exceptional leader, teacher, educator and promoter of exceptional talent, and he promoted many women.
One of the women Ludwig Boltzmann promoted was Henriette von Aigentler, who was refused permission to unofficially audit lectures at Graz University. Ludwig Boltzmann advised and helped her to appeal this decision, in 1874, Henriette von Aigentler passed her exams as a high-school teacher, and on July 17, 1876, Ludwig Boltzmann married Henriette von Aigentler, my great-grand mother.
Another woman Ludwig Boltzmann promoted was his student Lise Meitner (Nov 1878 – Oct 27, 1968), who later was part of the team that discovered nuclear fission, work for which Otto Hahn was awarded the Nobel Prize. Lise Meitner was also the second woman to earn a Doctorate degree in Physics from the University of Vienna. Element 109, Meitnerium, is named after Lise Meitner.
Nagaoka Hantaro, First President of the University of Osaka – Ludwig Boltzmann’s pupil
The first President of Osaka University (1931-1934), Nagaoka Hantaro (1865 – 1950) was Ludwig Boltzmann’s pupil around 1892 – 1893 at Muenchen University.
Ludwig Boltzmann, a leader of science
Ludwig Boltzmann was connected in intense discussions with all major scientists of his time, he travelled extensively including three trips to the USA in 1899, 1904 and 1905, about which he wrote the article “Die Reise eines deutschen Professors ins El Dorado”, published in the book “Populäre Schriften”.
Ludwig Boltzmann published his first scientific publication at the age of 21 years in 1865. He was appointed Full Professor of Mathematical Physics at the University of Graz in 1869 at the age of 25 years, later in 1887-1888 he was Rektor (President) of the University of Graz at the age of 43 years.
He spent periods of his professional work in Vienna, at Graz University (1869-1873 and 1876-1890), at Muenchen University (1890-1894). When working at Muenchen University, he discovered that neither he nor his family would not receive any pension from his employment at Muenchen University after an eventual retirement or in case he dies before retirement, and therefore decided to return to Vienna University in 1894, where he and his family were assured of an appropriate pension. During 1900-1902 he spent two years working in Leipzig, where he cooperated with the Nobel Prize winner Friedrich Wilhelm Ostwald.
Ludwig Boltzmann did not shy away from forceful arguments to argue for his thoughts and conclusions, even if his conclusions were opposite to the views of established colleagues, or when he felt that philosophers intruded into the field of physics, i.e. used methods of philosophy to attempt solving questions which needed to be solved with physics measurements, e.g. to determine whether our space is curved or not. Later in his life he was therefore also appointed to a parallel Chair in Philosophy of Science, and Ludwig Boltzmann’s work in Philosophy of Science is also very fundamentally important.
I discovered the unpublished manuscripts of Boltzmann’s lectures on the Philosophy of Science, stimulated and encouraged by myself, and with painstaking work my mother transcribed these and other unpublished manuscripts, and prepared them for publication, to make these works finally accessible to the world, many years after Ludwig Boltzmann’s death.
Ludwig Boltzmann was a down to earth man. He rejected the offer of Nobility by His Majesty, The Emperor of Austria, i.e. the privilege to be named Ludwig von Boltzmann (or a higher title) instead of commoner Ludwig Boltzmann. Ludwig Boltzmann said: “if our common name was good enough for my parents and ancestors, it will be good enough for my children and grand children…”
Summary: understanding Ludwig Boltzmann.
Boltzmann’s thoughts and ideas are a big part of our understanding of the world and the universe.
His mathematical tools are used every day by today’s engineers, bankers, IT people, physicists, chemists… and even may contribute to solve the world’s energy problems.
Ludwig Boltzmann stood up for his ideas and conclusions and did not give in to authority. He rejected authority for authority’s sake, and strongly pushed his convictions forward.
What can we learn from Ludwig Boltzmann?
empower young people, recognize and support talent early.
exceptional talent is not linear but exponential.
move around the world. Connect. Interact.
empower women.
don’t accept authority for authority’s sake.
science/physics/nature need to be treated with the methods of physics/science.
Boltzmann constant k, “What is temperature?” and the new definition of the SI system of physical units
(by Gerhard Fasol, CEO of Eurotechnology Japan KK. Served as Associate Professor of Tokyo University, Lecturer at Cambridge University, and Manger of Hitachi Cambridge R&D Lab.)
(in preparing this talk, I am very grateful for several email discussions and telephone conversations, and for unpublished presentations and documents, to Dr Michael de Podesta MBE CPhys MInstP, Principal Research Scientist at the National Physical Laboratory NPL in Teddington, UK, who has greatly assisted me in understanding the current status of work on reforming the SI system of units, and also his very important work on high-precision measurements of Boltzmann’s constant. Dr Michael de Podesta’s measurements of Boltzmann’s constant are arguable among the most precise, of not the most precise measurements of Boltzmann’s constant today, and therefore a very important contribution to our system of physical units).
Boltzmann constant k, the definition of the unit of temperature and energy
Temperature is one of the physics quantities we use most, and understanding all aspects of temperature is at the core of Ludwig Boltzmann’s work. People measured temperature long before anyone knew what temperature really is: temperature is a measurement of the average kinetic energy of the atoms of a substance. When we touch a body to “feel” its temperature, what we are really doing is to measure the “buzz”, the thermal vibrations of the atoms making up that body.
For an ideal gas, the kinetic energy per molecule is equal to 3/2 k.T, where k is Boltzmann’s constant. Therefore Boltzmann’s constant directly links energy and Temperature.
However, when we measure “Temperature” in real life, we are not really measuring the true thermodynamic temperature, what we are really measuring is T90, a temperature scale ITS-90 defined in 1990, which is anchored by the definition of temperature units in the System International, the SI system of defining a set of fundamental physical units. Our base units are of fundamental importance for example to transfer semiconductor production processes around the world. For example, when a semiconductor production process requires a temperature of 769.3 Kelvin or mass of 1.0000 Kilogram, then accurate definition and methods of measurement are necessary to achieve precisely the same temperature or mass in different laboratories or factories around the world.
second: The second is the duration of 9 192 631 770 periods of the radiation corresponding to the transition between the two hyperfine levels of the ground state of the cesium 133 atom.
metre: The meter is the length of the path travelled by light in vacuum during a time interval of 1/299 792 458 of a second.
kilogram: The kilogram is the unit of mass; it is equal to the mass of the international prototype of the kilogram.
Ampere: The ampere is that constant current which, if maintained in two straight parallel conductors of infinite length, of negligible circular cross-section, and placed 1 meter apart in vacuum, would produce between these conductors a force equal to 2 x 10-7 newton per meter of length.
Kelvin: The kelvin, unit of thermodynamic temperature, is the fraction 1/273.16 of the thermodynamic temperature of the triple point of water.
mole:
The mole is the amount of substance of a system which contains as many elementary entities as there are atoms in 0.012 kilogram of carbon 12
When the mole is used, the elementary entities must be specified and may be atoms, molecules, ions, electrons, other particles, or specified groups of such particles.
candela: The candela is the luminous intensity, in a given direction, of a source that emits monochromatic radiation of frequency 540 x 1012 hertz and that has a radiant intensity in that direction of 1/683 watt per steradian.
The definitions of base units has long history, and are evolving over time. Today several of the definitions are particularly problematic, among the most problematic are temperature and mass.
SI base units are closely linked to fundamental constants:
second:
metre: linked to c = speed of light in vacuum
kilogram: linked to h = Planck constant.
Ampere: linked to e = elementary charge (charge of an electron)
Kelvin: linked to k = Boltzmann constnt
mole: linked to N = Avogadro constant
candela:
Switch to a new framework for the SI base units:
Each fundamental constant Q is a product of a number {Q} and a base unit [Q]:
Q = {Q} x [Q],
for example Boltzmann’s constant is:
k = 1.380650 x 10-23 JK-1.
Thus we have two ways to define the SI system of SI base units:
we can fix the units [Q], and then measure the numerical values {Q} of fundamental constants in terms of these units (method valid today to define the SI system)
we can fix the numbers {Q} of fundamental constants, and then define the units [Q] thus that the fundamental constants have the numerical values {Q} (future method of defining the SI system)
Over the next few years the SI system of units will be switched from the today’s method (1.) where units are fixed and numerical values of fundamental constants are “variable”, i.e. determined experimentally, to the new method (2.) where the numerical values of the set of fundamental constants is fixed, and the units are defined such, that their definition results in the fixed numerical values of the set of fundamental constants. This switch to a new definition of the SI system requires international agreements, and decisions by international organizations, and this process is expected to be completed by 2018.
Today’s method (1.) above is problematic: The SI unit of temperature, Kelvin is defined as the fraction 1/273.16 of the thermodynamic temperature at the triple point of water. The problem is that the triple point depends on many factors including pressure, and the precise composition of water, in terms of isotopes and impurities. In the current definition the water to be used is determined as “VSNOW” = Vienna Standard Mean Ocean Water. Of course this is highly problematic, and the new method (2.) will not depend on VSNOW any longer.
In the new system (2.) the Kelvin will be defined as:
Kelvin is defined such, that the numerical value of the Boltzmann constant k is equal to exactly 1.380650 x 10-23 JK-1.
Measurement of the Boltzmann constant k:
In order to link the soon to be fixed numerical value of Boltzmann’s constant to currently valid definitions of the Kelvin, and in particular to determine the precision and errors, it is necessary to measure the value of Boltzmann’s current in terms of today’s units as accurately as possible, and also to understand and estimate all errors in the measurement. Several measurements of Boltzmann’s constants are being performed in laboratories around the world, particularly at several European and US laboratories. Arguably today’s best measurement has been performed by Dr Michael de Podesta MBE CPhys MInstP, Principal Research Scientist at the National Physical Laboratory NPL in Teddington, UK, who has kindly discussed his measurements and today’s status of the work on the system of SI units and its redefinition with me, and has greatly assisted in the preparation of this article. Dr Podesta’s measurements of Boltzmann’s constant have been published in:
Michael de Podesta et al. “A low-uncertainty measurement of the Boltzmann constant”, Metrologia 50 (2013) 354-376.
Dr Podesta’s measurements are extremely sophisticated, needed many years of work, and cooperations with several other laboratories. Dr. Podesta and collaborators constructed a highly precise resonant cavity filled with Argon gas. Dr. Podesta measured both the microwave resonance modes of the cavity to determine the precise radius and geometry, and determined the speed of sound in the Argon gas from acoustic resonance modes. Dr Podesta performed exceptionally accurate measurements of the speed of sound in this cavity, which can be said to be the most accurate thermometer globally today. The speed of sound can be directly related to 3/2 k.T, the mean molecular kinetic energy of the Argon molecules. In these measurements, Dr. Podesta very carefully considered many different types of influences on his measurements, such as surface gas layers, shape of microwave and acoustic sources and sensors etc. He achieved a relative standard uncertainty of 0.71. 10-6, which means that his measurements of Boltzmann’s constant are estimated to be accurate to within better than on millionth. Dr. Podesta’s measurements directly influences the precision with which we measure temperature in the new system of units.
Over the last 10 years there is intense effort in Europe and the USA to build rebuild the SI unit system. In particular NIST (USA), NPL (UK), several French institutions and Italian institutions, as well as the German PTB (Physikalische Technische Bundesanstalt) are undertaking this effort. To my knowledge there is only very small or no contribution from Japan to this effort, which was surprising for me.
What is today’s best value for the Boltzmann constant k:
VCSEL inventor Kenichi Iga: hv vs kT – Optoelectronics and Energy
(Former President and Emeritus Professor of Tokyo Institute of Technology. Inventor of VCSEL (vertical cavity surface emitting lasers), widely used in photonics systems)
VCSEL: how Kenichi Iga invented Vertical Cavity Surface Emitting Lasers
My invention of vertical cavity surface emitting lasers (VCSEL) dates back to March 22, 1977. Today VCSEL devices are used in many applications all over the world. I was awarded the 2013 Franklin Institute Award, the Bower Award and Prize for Achievement in Science, “for the conception and development of the vertical cavity surface emitting laser and its multiple applications in optoelectronics“. Benjamin Franklin’s work is linked to mine: Benjamin Franklin in 1752 discovered that thunder originates from electricity – he linked electronics (electricity) with photons (light). After 1960 the era of lasers began, we learnt how to combine and control electrons and photons, and the era of optoelectronics.
If you read Japanese, you may be interested to read an interview with Genichi Hatakoshi and myself, intitled “The treasure micro box of optoelectronics” which was recently published in the Japanese journal OplusE Magazine by Adcom-Media.
Electrons and photons
Who are electrons? Electrons are just like a cloud expressed by Schroedinger’s equation, which Schroedinger postulated in 1926. Electrons can also be seen as randomly moving particles, described by the particle version of Schroedinger’s equation (1931).
Where does light come from? Light is generated by the accelerated motion of charged particles.
Electrons also show interference patterns. For example, if we combine the 1s and 2p orbitals around a nucleus, we observe interference.
In a semiconductor, electrons are characterized by a band structure, filled valence bands and largely empty conduction bands. The population of hole states in the valence bands and of electrons in the conduction bands are determined by the Fermi-Dirac distribution. In typical III-V semiconductors, generation and absorption of light is by transitions between 4s anti-bonding orbitals (the bottom of the conduction band) and 4p bonding orbitals (the top of the valence band).
In Japan, we are good at inventing new types of vertical structures:
in 607, the Horyuji 5-Jyu-no Toh (5 story tower) was built in Nara, and today we have progressed to building the 634 meter high Tokyo Sky Tree Tower.
in 1893, Kubota Co. Ltd. developed the vertical molding of water pipes
in 1977 Shunichi Iwawaki invented vertical magnetic memory
in 1977 Tatsuo Izawa developed VAD (vapor-phase axial deposition) of silica fibers
in 1977 Kenichi Iga invented vertical cavity surface emitting lasers (VCSEL)
Communications and optical signal transmission
History of communications spans from 10,000 years BC with the invention of language, and 3000 BC with the invention of written characters and papyrus, to the invention of the internet in 1957, the realization of the laser in 1960, the realization of optical fiber communications in 1984, and now since 2008 we see Web 2.x and Cloud.
Optical telegraphy goes back to 200 BC, when optical beacons were used in China: digital signals using multi-color smoke. Around 600 AD we had optical beacons in China, Korea and Japan, and in 1200 BC also in Mongolia and India.
In the 18th and 19th century, optical semaphores were used in France.
In the 20th century, optical beam transmission using optical rods and optical fiber transmissions were developed, which combined with the development of lasers created today’s laser communications. Yasuharu Suematsu and his student showed the world’s first demonstration of optical fiber communications demonstration on May 26, 1963 at the Tokyo Institute of Technology, using a He-Ne laser, an electro-optic crystal for modulation of the laser light by the electrical signal from a microphone, and optical bundle fiber, and a photo-tube at the other end of the optical fiber bundle to revert the optical signals back into electrical signals and finally to drive a loud speaker. For his pioneering work, Yasuharu Suematsu was awarded the International Japan Prize in 2014.
VCSEL: I recorded my initial idea for the surface emitting laser on March 22, 1977 in my lab book.
Vertical Cavity Surface Emitting Lasers (VCSEL) have many advantages:
ultra-low power consumption: small volume
pure spectrum operation: short cavity
continuous spectrum tuning: single resonance
high speed modulation: wide response range
easy coupling to optical fibers: circular mode
monolithic fabrication like LSI
wafer level probe testing
2-dimensional array
vertical stack integration with micro-machine
physically small
VCSEL have found applications in many fields, including: data communications, sensing, printing, interconnects, displays.
As an example, the Tsubame-2 supercomputer, which in November 2011 was 5th of top-500 supercomputers, and on June 2, 2011 was greenest computer of Green500, uses 3500 optical fiber interconnects with a length of 100km. In 2012: Too500/Green500/Graph500
IBM Sequoia uses 330,000 VCSELs.
Fuji Xerox introduced the first demonstration of 2 dimensional 4×8 VCSEL printer array for high speed and ultra-fine resolution laser printing: 14 pages/minute and 2400 dots/inch.
VCSEL photonics started from minor reputation and generated big innovation. VCSELs feature:
low power consumption: good for green ICE
high speed modulation beyond 20 GBits/second
2D array
good productivity due to monolithic process
Future: will generate ideas never thought before.
em. President of Tokyo Institute of Technology, Professor Kenichi Iga, inventor of VCSELGerhard Fasol (left), em. President of Tokyo Institute of Technology, Professor Kenichi Iga (right)
Start-up Nation Israel 2014 – Israel Japan Investment Funds meeting on March 4, 2014 at the Hotel Okura in Tokyo
Israeli Venture funds introduce Israeli ventures to Japanese investors
Acquisition of Viber by Rakuten draws attention in Japan to Israeli ventures
The recent acquisition of the Israel-based OTT (over the top) communications company Viber by Rakuten for US$ 900 Million has drawn attention in Japan to Israel’s innovative power, however many Japanese companies are already cautiously investing in Israel while keeping a low profile, we learnt at the “Start-up Nation Israel 2014” Israel Japan Investment Funds meeting on March 4, 2014 at the Hotel Okura in Tokyo.
Most of the companies presented at the conference were highly sophisticated computer security, medical equipment, and similar “mono zukuri” type ventures, but also included a “selfie” app for auto-portrait or group photos using iPad or iPhone.
By the way: our company is currently working to sell an Israeli venture company to Japan as an exit for investors, and to accelerate business development in Japan for this company.
Her Excellency, Ambassador of Israel to Japan, Ms Ruth Kahanoff opened the conference:
Her Excellency, The Ambassador of Israel to Japan, Ms Ruth Kahanoff
Economic Minister of Israel to Japan, Mr Eitan Kuperstoch explained that while there is substantial investment in Israel’s ventures by many major Japanese corporations, there is much scope for increases. Japan’s investment added together are on the order of 1% of foreign direct investments to Israel:
Economic Minister to Japan of Israel, Eitan Kuperstoch
Pitches by Israeli Venture Funds
BRM Group: actually a privately held fund, strictly speaking not venture capital
CHIMA Ventures: medical devices, minimal invasive surgery tools.
TERRA Venture Partners: Terra invests in about 16-20 (4-5 per year) for a 1-2 year incubation period, followed by a “cherry picking” process. Terra VP invests in companies surviving the “cherry picking”. Veolia, GE, EDP, Clearweb, Enel are partners.
Giza Venture Capital: 5 funds, US$ 600 million under management, 102 investments, 20 active, 38 exits. Examples are: XtremIO, Actimize, Telegate, Precise, Plus, msystems, cyota, Olibit, Zoran, XTechnology. A particular success story is XtremIO: the team of 21 people (including secretary) turned US$ 6 million investment into a US$ 435 million cash sale to EMC.
StageOne Ventures: Early stage US$ 75 million fund, 17 investments.
Gillot Capital Partners: seed and early stage. Focus: cyber security.
SCP Vitalife Partners: 2 funds, US$ 230 capital under management.
Magma Venture Partners: focus on information and communications sector. Created over US$ 2 billion in acquired company value. Biggest success story: waze (crowd sourced location based services), return on capital investment: 171-times.
OrbiMed Healthcare Fund Management: largest global healthcare dedicated investment firm.
Nielsen Innovate:
Panel discussion of Israeli Venture Capital Fund Managers and the Vice-President of Japan’s Venture Capital Association
Presentations and Panel discussion
Arik Klienstein: Driving innovation in Israel – the 8200 impact
8200 is a unit within the Israeli Defence Forces similar to the US NSA – technology based intelligence collection. 8200 veterans lead many Israeli start-ups including NICE, Verint, Check Point, paloalto.
8200 and the start up culture:
Select the best people out of high school or college
Short first formal training. Most of training done on the job
Flexible dynamic organizational structure
Direct and constant relationship with the end user
“Think out the box” mentality – no assumptions. Hierarchy-less flat structure
Must win attitude!
Tal Slobodkin (Talpiot 18 Graduate): The Talpiot program
Talpiot is Israel’s elite Israel Defense Forces training program, dedicated to create leading research and development officers for the various branches of the Israeli Defence Forces. Program was created in 1979, about 1000 graduates today.
Selection process:
starts with 15,000++ high school seniors
100-150 attend next level of leadership assessment
50-75 reach final selection committee
30-40 enter the program
25-35 graduate
Training and assignment:
three full academic years
full dual degree in Maths and Physics, most graduate additionally in Computer Science or other subjects
military training
significant exposure to all cutting edge military and non-military innovation
develop management skills
graduates pick own final assignment
minimum assignment is additional 6 years, average tenure in Israeli Defense Forces is 10 years
Notable graduates:
Yoaf Freund: Professor at UC San Diego, Goedel Prize winner
Elon Lindenstrauss, Professor of Mathematics at the Hebrew University and winner or 2010 Fields Medal
Marius Nacht, co-founder of Check Point Software
Eli Mintz, Simchon Faigler, Amir Natan, founders of Compugen Ltd
Founders of XIV, sold to IBM for US$ 400 million
Eviatar Metanya, head of National Cyber Bureau
Ophier Shoham, head of Israel’s Defence R&D Agency (Israel’s DARPA)
Elchana Harel (Harel-Hertz Investment House): Japanese investments in Israel
94 Japanese investments in Israeli High-tech during 2000-2014:
ICT: 41 investments
Semiconductors: 25 investments
Life sciences: 11 investments
VC funds: 17 investments
Characteristics:
Most investments are strategic, not financial, not exit driven
Most investments are direct into target companies, and relatively small by global standards: up to US$ 3 million
In many cases “silent investments”: e.g a Japanese electronics company does not want their Japanese competitors to know that they invest in Israel
Japanese investors mostly follow Israeli or US lead investors. Japanese investors seldom lead.
Japanese acquisitions in Israel:
Nikken Sohonsha: NBT
Yasukawa Robotoics: Yasukawa Israel (Eshed), Argo Medical Robotics
David Heller: cooperation of Israeli investment funds with Japan
Israel’s venture capital fund industry was created by Israel’s Government creating the Yozma Fund of Funds: Israel’s Government invested a total of US$ 100 million in 10 VC funds (US$ 10 million per fund) under the condition that these funds had to attract much larger non-Government investment. In total the Yozma Fund of Funds invested US$ 100 million and resulted in a VC fund industry with a total of US$ 17 Billion of VC funds raised since 1993.
There is a relatively large number of Japanese investments in Israeli funds, however, the combined total investment is rather low, approximately 1% of all foreign investments in such funds. Thus there is much scope for increased Japanese investments in Israeli funds and ventures.
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:
London Stock Exchange formed the Tokyo AIM market as a joint venture with Tokyo Stock Exchange and now withdraws from this venture and from Japan
Initially, London Stock Exchange and Tokyo Stock Exchange created Tokyo-AIM as a joint-venture company in order to create a jointly owned and jointly managed AIM Stock Market in Tokyo, modeled according to the very successful London-AIM model.
“Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own” NIKKEI on March 26, 2012
However, on March 26, 2012 NIKKEI reported that “Tokyo Stock Exchange has learnt enough from the London Stock Exchange to set up a similar market on its own. TSE plans to improve the rules of its own new market, so that TSE can create a more welcoming market” (our translation of the original Japanese NIKKEI article to English).
London Stock Exchange withdraws from joint venture, and Tokyo Stock Exchange takes 100% control of Tokyo AIM
London Stock Exchange withdrew from the venture, and Tokyo Stock Exchange took over 100% of Tokyo-AIM. Essentially, London Stock Exchange AIM’s venture into Japan failed, while the stock market created by the venture continues without London Stock Exchange’s involvement. As explained in our blog here, these events are very very similar to what happened with NASDAQ about 10 years earlier!
Tokyo AIM name changed to TOKYO PRO Market and TOKYO PRO-BOND Market
In 2012, the name was changed from Tokyo-AIM, to TOKYO PRO Market and TOKYO PRO-BOND Market. Details can be found here:
AppAnnie showed that in terms of combined iOS AppStore + Google Play revenues, Japan is No. 1 globally, spending more than the USA. Therefore Japan is naturally the No. 1 target globally for many mobile game companies, and 10 out of 25 top grossing apps in Japan are of foreign origin!
Many foreign game companies have failed and given up. Foreign game companies that have recently given up in Japan include Zynga and Habbo Hotel. EA has given up twice, and is now undertaking the third entry to Japan. To understand some of the key mistakes foreign companies make in Japan, read our blog about why Vodafone failed in Japan.
Lets have a look at the list of top grossing games in the Apple iOS AppStore today. Out of the 25 top grossing games in the AppStore, 10 are by foreign originating companies. Can you guess which these are by reading the list below?
So Japan is certainly not a “closed market”. Actually, it is obvious that Apple does not discriminate in any way against foreign companies in Japan.
Interestingly, neither Nintendo, nor Rovio’s games, such as Angry Birds appear among the 200 “top grossing games” in Apple’s iOS Japan AppStore.
Apple iOS AppStore-Japan “Top Grossing” games ranking – 10 out of the 25 top grossing apps in Japan are by companies of foreign origin
Can you guess which 10 are by companies of foreign origin?
Flappy bird Angry Birds ultimate disruption: flappy bird effortlessly flaps to to the top of ranks, while Angry Birds are watching angrily from the sidelines
Disruption of Japan’s games sector: in a previous blog post we showed that just three newcomers (Gree + DeNA + Gungho) produce more profits than the top 9 traditional game companies combined.
Lets look at some more disruption from the perspective of Japan’s iPhone App store. Lets look at Flappy Bird vs Angry Birds…
Flappy bird Angry Birds ultimate disruption: iOS Japan AppStore “free” games ranking
February 3, 2014, in the “free” ranking in the games section of the iPhone AppStore, we find LINE dominating.
And newcomer Flappy Bird has overtaken Angry Birds by a long margin. Angry Birds Go! appears on rank No. 97 – which actually in Japan is not that bad, given the huge revenues in Japan – as App Annie has shown, Japan’s the world’s biggest grossing apps market both for iOS and Android – so No. 97 in the world’s biggest App market is not that bad.
In a subsequent article we analyze the top grossing 25 apps in the iOS AppStore.
Philip Rubel, CEO of Saatchi & Saatchi Fallon Tokyo KK gave a talk about “Lovemarks”, a concept in branding developed by Saatchi & Saatchi CEO Kevin Roberts.
To understand Japan’s media landscape read the “Japan’s media” report.
The argument is that traditional “brands” are losing relevance because in our advanced “post-industrial” societies, function and technology are given, and can usually be rapidly reproduced or overtaken by competitors. Therefore, advertising based on function or technology does not work anymore. Another factor is the shift from traditional one-way media such as TV and print, to social media and peer-to-peer interactions, where anyone can publish anything about “brands” and “brands” cannot do anything about it directly. Thus traditional brands are dead. So, how can we get people to attach irrationally, beyond reason? Lasting relationships are not based on rational thinking.
Japan brand management: Lovemarks create loyalty which goes beyond reason
“Lovemarks” counter these effects: the concept of Lovemarks is to “create loyalty which goes beyond reason”. To create love for the Lovemarks. To get there, Saatchi & Saatchi believes in the “unreasonable” power of creativity: creativity can create loyalty beyond reason.
Philip Rubel showed us several examples of campaigns, mainly in Japan, which were successful far beyond expectations. These campaigns are based on creativity, incorporate surprise, appeal to emotion, and aim to exploit viral sharing on social media such as facebook and YouTube. Creativity is used to replace expensive traditional top-down one-way media such as TV and print, by social media, internet, YouTube and viral sharing and engagement. Here are some examples:
BMW films by Fallon
The issue was to develop the BMW brand in USA with limited budgets. BMW Films was a series of films created by famous directors and famous actors, which was uploaded to the BMWfilms.com website for download. BMW Films became famous, actors volunteered to appear, and download figures were far beyond plan.
The Hire – Star (by BMW Films)
BMW Films – The Hire – Beat the Devil
SONY Bravia balls in San Francisco
SONY Bravia bouncy balls
Making of SONY Bravia bouncy balls
Making of SONY Bravia bouncy balls
SONY Bravia paint
SONY Bravia – Paint
Godiva Love & Hug project for Valentine’s day 2013
For Valentine’s day 2013, Saatchi & Saatchi built a hugging robot, which people could hug, and the hugs were measured, rated, and photographed, and the results could be displayed on social network sites etc. The campaign is explained here on Saatchi & Saatchi’s website.
Godiva Love & Hug project for Valentine’s day 2013
De’Longhi had the issue of competing with much more powerful Nestle’s campaign centered on George Clooney. De’Longhi decided to use Michelangelo’s David, who is immensely popular in Japan – and who does not require actor’s fees…
Reebok Rajio Taiso
Radio Taiso is a morning gymnastics series, which Japan’s national radio and TV system NHK started back in 1928. Saatchi & Saatchi created an imitation of Radio Taiso using professional acrobats, and relied on viral marketing. The advertised brand name appears only very briefly at the end of the video clip – enough to create response far beyond expectations:
Reebok Rajio Taiso
T-Mobile “Life’s for sharing” campaign
T-Mobile “Life’s for sharing” Royal Wedding episode currently has 27,539,402 views on YouTube:
T-Mobile “Life’s for sharing” campaign
Understand Japan’s media and advertising industries
Report on Japan’s Media (approx. 200 pages, pdf file)
EU Japan investment stock is expected to increase with the future Economic Partnership Agreement
European direct investments into Japan, European acquisitions in Japan
EU investments in Japan have been relatively constant around EURO 80 billion. There has been a marked reduction in EU investment in Japan in 2006 due to the withdrawal of Vodafone from Japan with the sale of Vodafone KK to Softbank for approx. EURO 12 billion (find details of the Vodafone-SoftBank M&A transaction here). This reduction of EU investment stock in Japan is clearly visible in the graphics below in 2006 and 2007.
Japanese direct investment in Europe, Japanese acquisitions in Europe
Japanese investments in EU are steadily increasing, as Japanese companies are seeking to grow business outside Japan’s saturated market, and as Japanese companies acquire European companies for market access, technology and global business footprint. In 2012 the total investment stock of Japanese companies in the EU-27 has reached around EURO 150 billion.
EU Japan investment flow is mainly from Japan to Europe and totals about EURO 10 billion per year
Investment flow between EU and Japan shows strong impact from the Lehmann shock economic downturn, and was very quiet between 2008 and 2010. In recent years, mainly Japanese investments to Europe have picked up, and currently about EURO 10 billion per year flow from Japan to Europe, Japanese companies acquiring European companies to globalize and also to pick up known-how and technologies.
Investment flow from EU to Japan remains at relatively low levels around EURO 1 billion annually, while investments by Japanese companies in the EU are on the order of EURO 10 billion per year currently.
Japan to Europe direct investment register:
Investment flow recently is almost one way from Japan into Europe.
EU Japan investment flow is mainly from Japan to Europe and totals about EURO 10 billion per year
With the expected Economic Partnership Agreement (EPA) we expect investment flows to increase in both directions.
The pressure to globalize, and saturation of Japan’s markets drives Japanese corporations to invest in Europe, therefore we expect the future Economic Partnership Agreement between Japan and EU to stimulate further Japanese investments in Europe more than in the Europe -> Japan direction.
EU Japan trade adds up to about EURO 160 billion/year if both directions are added up
Combining the amounts of trade for merchandise and commercial services, EU exports to Japan and Japanese exports to EU have reached equal levels, so that the trade between EU and Japan is now balanced around EURO 80 billion in each direction, i.e. a combined trade of EURO 160 billion.
EU Japan trade: EU is traditionally stronger in the export of commercial services while Japan is stronger in the export of manufactured goods
Japan is traditionally stronger in the export of manufactured goods, while EU is stronger in the export of commercial services. Combining both merchandise and services, the trade between EU and Japan is now balanced.
EU Japan trade: the trade deficit is balanced out now
There used to be a trade deficit and trade friction: Japan used to export much more to Europe, than Europe exported to Japan. Recently, Europe has increased exports to Japan considerably, and the trade is now balanced in both directions.
SOMPO, a Japanese insurance company owned by NKSJ Holdings, acquired Canopius in order to globalize
In order to globalize, Japanese insurance company Sompo Japan (株式会社損害保険ジャパン), part of the insurance group NKSJ Holdings (NKSJホールディングス株式会社, TSE / JPX: No. 8630) announced yesterday the acquisition of 100% of the UK re-insurer Canopius Group Limited, operating on Lloyd’s for UKL 594 million (US$ 972 million), from the current owners. Current majority owner of Canopius is Bregal Capital.
Canopius will keep the brand, company name, and management team.
Canopius, is an insurance group, one of the top ten insurers in the Lloyd’s market, was founded in December 2003, almost exactly ten years ago, via a Management Buy-Out (MBO) with UKL 25 million capital, which grew about twenty-fold to about UKL 500 million today, and today has about 560 employees.
Canopius is named after Nathaniel Canopius, native of Crete, who studied at Balliol College, Oxford, apparently introduced coffee drinking to Oxford around 1637 (according to the Canopius website), and later became Archbishop of Smyrna (Source: “Anglicans and Orthodox, Unity and Subversion, 1559-1725”, by Judith Pinnington, 2003, ISBN 0-85244-577-6, page 15).
Japanese management – why is it not global? What should we do? Keynote speech by Masamoto Yashiro at brainstorming by President of Tokyo University
summary of Masamoto Yashiro’s talk written by Gerhard Fasol
Masamoto Yashiro is a legend in Japan’s banking and energy industry. He built Shinsei Bank from the ashes of the bankrupt Long Term Credit Bank of Japan, and served in leadership positions (Chairman, CEO, Board Member) in Esso, Exxon, Citibank, Shinsei Bank, and the China Construction Bank.
Tonight a small group of about 60 people were invited to join Masamoto Yashiro and the President of The University of Tokyo, Professor Junichi Hamada, for an evening workshop and brainstorming event about globalization of Japanese corporations at The University of Tokyo. Participating were a selected group of The University of Tokyo graduates, faculty, and selected alumni from several elite Universities associated with The University of Tokyo, and currently working at major Japanese trading companies, Ministry of Finance, financial firms, global consulting firms and other global firms.
After The University of Tokyo President Junichi Hamada’s introductory words, we heard Masamoto Yashiro’s fantastic overview of how he thinks Japanese companies need to change and why, followed by Q&A, then by a brainstorming session in the format of changing groups of four on about 15 separate tables between the participants, and then followed by buffet and drinks reception.
Topic of the evening was the globalization issues of Japanese corporations, also discussed in our work about Japan’s Galapagos issues:
Masamoto Yashiro graduated from Kyoto University (Law Faculty) in 1954 and The University of Tokyo Graduate School in 1958, and entered Standard Vacuum Oil Company. In 1964 he became Director of Esso, and later Special Assistant to the Chairman of Standard Oil New Jersey, and in 1986 President of Esso Sekyu KK. In 1989, Masamoto Yashiro moved to become Japan representative of Citibank NA, and Chairman of Citicorp Japan in 1997. IN 1999, Masamoto Yashiro became CEO of New LTCB Partners CV, the company emerging from the bankruptcy proceedings of the Long Term Credit Bank of Japan, and was in charge of the revival of LTCB as Chairman and CEO, with investment from Ripplewood Investment Fund, creating today’s Shinsei Bank. He resigned as CEO of Shinsei Bank in 2005, but returned as Chairman and CEO in 2008, from which he retired in 2010. In 2004, he was appointed Director of the China Construction Bank.
Masamoto Yashiro (former Chairman of Shinsei Bank, Chairman of Citicorp Japan and President of Esso Japan, Director of China Construction Bank)
Japanese management – why is it not global? What should we do? asks Masamoto Yashiro
Note: this record was reviewed personally by Masamoto Yashiro, who made some corrections.
Japanese management – why is it not global? Outline:
Some people may argue that Japanese companies need not be global. Why?
We must accept that English is an essential tool for international communication.
Some impediments that Japanese companies face:
The traditional approach is not effective in developing future leaders.
The Japanese-style board structure is not appropriate to ensure sound corporate governance.
Management structure needs to be changed to suit a global business.
The current limited role of foreign nationals in the management and board structure
What should be the most important corporate objective?
Concluding remarks
Masamoto Yashiro (standing at the podium on the right hand side) presenting and President of Tokyo University Junichi Hamada (sitting on the left) listening
Summary of Masamoto Yashiro’s talk:
Some people may argue that Japanese companies need not be global. Why?
Some superficial discussions about “Japanese companies” contrast “permanent employment” and excellent pensions in Japanese companies with job-hopping and bad pensions in other countries, however, Masamoto Yashiro points out that during his time at Esso and later Exxon, most employees stayed 20-30 years at Exxon, and received excellent pensions, so “permanent longterm employment” or pension system has nothing to do with globalization, and Japanese leading companies are no different than leading companies in other countries in these respects. We have to search elsewhere for the causes of current problems most Japanese companies are facing.
Around 1990, about 20 years ago, Japan was extremely self-satisfied by the successful reconstruction after the war and economic growth and success, and Japan felt that Japan does not have anything to learn from others. This time is now over, Japan is in stagnation, and many Japanese companies are not globally competitive, and Japan and Japanese companies must change to become competitive again.
We must accept that English is an essential tool for international communication.
Masamoto Yashiro is convinced that Japanese companies must globalize, and must make English a business tool. He feels it is a great disadvantage that Japanese political and corporate leaders, when participating in international conference, such as Davos, mostly need to use interpreters, and this reduces their global impact and exchange of ideas dramatically.
Some impediments that Japanese companies face:
1. The traditional approach is not effective in developing future leaders.
The traditional approach in Japan is to rotate career employees every two years between totally different functions, in order to “develop well-rounded managers”. The result of this process are non-experts, which are not expert in anything.
As an example, during his leadership at Shinsei Bank, Masamoto Yashiro once requested a meeting with the IT Department leadership. To his great surprise 60 people turned up for the meeting (he had expected 2 or 3). He asked the Department Chief for particular information, and he could not understand the question and could not answer, same result one management lower. Only at the third layer from the top, Masamoto Yashiro could get his question answered – the top two management layers could not answer his questions about the work of the IT Department. Quite generally there often far too many people at meetings at Japanese companies.
When at Exxon in the US as a relatively junior manager, Masamoto Yashiro, was asked about his opinion regarding the termination of a particular joint-venture relationship with a mid-size petroleum refining company in Japan known then as ゼネラル石油精製 who had financial trouble. Exxon had a 50% interest in this company and its relations goes back to very late 1950’s. In late 1985 at the Exxon Management Committee meeting in New York, all other managers favored to terminate the relationship with this joint venture partner in trouble in order to limit financial exposure, while Masamoto Yashiro argued that it was better to support the troubled partner and assist him with Exxon staff and expertise to return to profitability. To his great surprise the Chairman and his superiors at Exxon sided with his recommendation and changed their previous position following his advice. Generally he felt that in the USA his opinion as a Japanese manager was highly valued, because it provided a different view point.
In his experience in Japan the situation is totally opposite: Japanese senior management generally does not listen to junior employees, and particularly not to foreign nationals in the rare cases that there are any in Japanese companies. In fact, the most frequent question senior management at Japanese banks ask, is not for original ideas or creativity from junior staff, but instead: “What do other banks do?”
This deplorable Japanese situation even contrasts strongly with the situation in China, where Masamoto Yashiro was a Director of the China Construction Bank: in China leaders moved from Government agencies and Ministries to Banks, and to private industries and back.
Generally Masamoto Yashiro expressed the view, that the development of leaders is totally inadequate in Japan, and is better in China than in Japan.
In addition to the inadequate development of leaders in Japanese companies, the number of foreign nationals in management, Board and other leadership positions in Japanese companies is minute, there are no programs to attract and develop foreign nationals in leadership positions. On the contrary, when Shinsei Bank showed losses in the aftermath of the Lehman shock, Japan’s Financial Services Agencies ordered that Shinsei Bank must pay all foreign nationals on exactly the same pay levels as Japanese employees. Since foreign nationals typically have much higher schooling and other costs in Japan than Japanese staff, essentially all non-Japanese staff at Shinsei Bank left soon after.
Leaders can make a real difference.
How leaders are selected is of utmost importance.
At Exxon, senior management devote specially reserved time to identify suitable candidates for future leadership positions, “who can potentially be our CEO in the future”. The selected candidates are given special attention and special opportunities to train and develop their leadership abilities. Masamoto Yashiro has never heard about such special leadership development programs at Japanese companies.
2. The Japanese-style board structure is not appropriate to ensure sound corporate governance.
In Japan, Board Members are almost always managing employees of the company, so the question arises who’s interests they represent on the Board. Do they represent the interests of the institution (the company), the employees or the interests of the shareholders.
In Japan often the CEO of the company after his retirement remains as a Chairman for several years, keeps his office, secretary and company car, and creates large other expenses. Why? Probably because Japanese CEO pay is too low, so that the CEO does not wish to retire gracefully.
This is totally different in Western companies where retired CEOs leave the company and have no further role in the company in most cases. Masamoto Yashiro mentioned the retired Chairman of Exxon, who after his retirement naturally travelled by taxi. In Japanese it would be unthinkable according to Masamoto Yashiro that the retired Chairman of a major corporation would travel by ordinary taxi cab like ordinary people (Masamoto Yashiro did not mention subway or bus, or driving his own personal car….)
3. Management structure needs to be changed to suit a global business.
In non-Japanese companies in almost all cases have a thorough performance evaluation system. When performance is evaluated, the resulting distribution must be similar to a normal distribution, i.e. with considerable part of employees at the high end and substantial numbers at the low end of the performance curve. If this is not done, top performers cannot be sufficiently rewarded and will leave the company, while low performers would hold the whole company back.
In most Japanese companies on the other hand, if a thorough performance evaluation is done at all, in most cases a huge proportion of employees are just evaluated as average, satisfying performance, without clear distinctions between top and bottom performance.
Promotion and salary on the other hand in traditional Japanese companies is purely according to age, which leads to many problems, and causes under-performance of the whole company.
These problems are increased by the fact, that Japanese companies typically do not give the same evaluation or opportunities to non-Japanese nationals.
4. The current limited role of foreign nationals in management and board structure.
Even in the rare cases where foreign nationals are employed by Japanese companies in management or leadership positions e.g. in foreign subsidiaries, often junior Japanese employees which much lower rank and local knowledge do not respect and bypass non-Japanese management, and there is typically no fair evaluation system, evaluating Japanese and non-Japanese management according to the same standards of performance.
The change of this mindset (to keep non-Japanese out of management or leadership positions at Japanese corporations) is extremely important.
The change of mindset (to keep non-Japanese out of management or leadership positions at Japanese corporations) is not difficult at all and can be done quickly.
What should be the most important corporate objective?
When considering corporate governance it is important to develop a view on the objectives. When discussing the interest of shareholders, it is important to ask “which shareholders”? The interests of large shareholders who may own 10% or 20% of the corporation, or the interests of individual smaller shareholders? Other stake holders’ interests also need to be taken into account.
In general, Masamoto Yashiro expressed the view that both the institution’s (the company’s) and the shareholders interest are best served by stable long-term growth of the company. He mentioned as an example Exxon which showed triple-A rating and annual rate of growth of 15%-17% for over 100 years.
Concluding remarks.
Around 1990 Japan was self-satisfied with the economic success, and Japanese people thought that they have nothing to learn from anybody. This time is over now, and Japan and Japanese corporations much change to regain growth and to become competitive again.
Professor Junichi Hamada, President of The University of Tokyo, listening to Masamoto Yashiro’s talk
Japanese management – Q&A with Masamoto Yashiro (selected questions)
Q. You want Japanese companies to change. What are the good things you want Japanese companies to keep?
A. Loyalty. Consideration to stakeholders.
Q. Your work at Shinsei.
A. Communication was most important. When Masamoto Yashiro took over at Shinsei, the Bank has just gone through bankruptcy proceedings, so the moral was extremely low. Masamoto Yashiro had to reestablish optimism and moral. To do so, communication is most important. Masamoto Yashiro held weekly telephone conferences and every employee who wanted to could participate: from top management to cleaning staff/janitors. Everyone could come forward with his concerns.
Another fact was that there were so many traditions which made no sense. For example, female employees with University degrees would wear their own clothes, while female employees without University degrees would need to wear company uniform. There was an issue that lower paid staff had difficulty to afford appropriate clothing for bank work – so Masamoto Yashiro decided to award a clothing allowance to employees so that they could afford appropriate clothing.
Q. Many Japanese companies cannot hire young employees, because they cannot fire/discharge non-performing older employees.
A. Firing/discharge of non-performing employees can be done by paying adequate severance compensation. Considering that a non-performing employee who remains on the payroll for several years in addition to salary also creates a lot of secondary costs, it is typically cheaper to pay an appropriate severance package, and most people are happy to leave with an appropriate severance package, and often move to a more suitable position at a different company – this helps everyone. Of course some companies want to save money at all cost, and fire employees without adequate package and that can lead to problems.
Q. Having worked much of your career at global oil or energy companies, what to you think about Japanese oil companies?
A. Japanese oil companies are not really oil companies, because they do not invest enough upstream.
Q. Leadership?
A. Japanese companies must change. The mindset must change.
Q. University of Tokyo?
A. University of Tokyo at the moment I think is ranked on 30th or 40th position globally in most rankings, maybe top in Japan or in Asia, but that does not count, we need to look at the whole world, not just Japan or Asia. I think University of Tokyo should make the changes necessary be at least in the top ten globally. To get into the top ten globally, University of Tokyo needs to hire outstanding Professors where the best students from the whole world want to come and study. To get the best Researchers and Professors University of Tokyo has to pay what is necessary. Does not matter which language, English or Japanese or any other language. No outstanding student from other parts of the world wants to study Japanese first before studying at University of Tokyo. University of Tokyo should make the necessary changes so that the best students from top Universities globally also want to come to University of Tokyo.
Mr Masamoto Yashiro’s talk and Q&A were followed by a brainstorming session in groups among all participants of four about globalization, and global leadership development.
Social media revolutionize brand marketing: people don’t want to be told what to buy, but want to discover and share
Social media marketing: Consumers have now taken control of what they watch, read and listen to and so the messages they receive are the ones they chose to receive. Brands must now deserve that attention through appealing to their needs and feelings and not simply by buying airtime on television.
Ray Bremner, President & CEO of Unilever Japan gave a talk at Waseda University
To understand Japan’s media landscape read the “Japan’s media” report.
Social media marketing (Ray Bremner, President & CEO, Unilever Japan)
From Advertising to consumers to mattering to people
My key take-away is that social media have made the top-down “begin told” way of advertising obsolete, and replaced it by finding, sharing and engaging.
About Unilever:
Unilever was founded in 1929 by the merger of the British soap maker “Lever Brothers” (founded in 1885 by William Hesketh Lever, The Right Honourable The Viscount of Leverhulme), with the Dutch margarine producer “Naamloze Vennootschap Margarine Uni”, which was formed by the merger of several margarine companies, including those of Antonius Johannes Jurgens and Samuel van den Bergh. Soap brought hygiene to ordinary people, and margarine helped people who could not afford butter. Both companies, Lever and Margarine Uni had in common that they used palm oil as raw material.
The merger of Lever and Margarine Uni was decided over dinner in London in 1929, and written down in a 100 word merger agreement – unthinkable today for an M&A agreement.
About 50% of Japanese people have Unilever products at home
Unilever vision 2010 is: double the business, while reducing the environmental footprint. Execution of this vision is measured by 60 KPIs and the results are published.
Unilever vision:
We work to create a better future every day.
We help people feel good, look good, and get more out of life with brands and services that are good for them and good for others. We will inspire people to take small everyday actions that can add up to a big difference for the world.
We will develop new ways of doing business that will allow us to double the size of our company while reducing our environmental impact.
Unilever mission: building brands that improve people’s lives.
Ray Bremner, President & CEO of Unilever Japan: Social Media is revolutionizing the way we market brands
Ray Bremner: “social media are revolutionizing the way we market brands, and they are making people like me extinct”.
From 2001 to 2013, the average time Japanese consumers spend watching TV has decreased from about 3 1/2 hours/day to 3 hours/day, while the time spent with PC & mobile has tripled from 1/2 hour/day to 1 1/2 hours per day. Most Japanese age groups use social media, usage peaks at 35% for men in their 20s, and around 45% for women in their 20s, and around 30% in their 30s.
TV reaches about 88% of Japan’s population, and digital media (PC and mobile) reach about 73%.
From 2001 to 2012, advertising expenditure in Japan has decreased from about US$ 27 Billion/year to US$ 23 Billion/year, while expenditure for digital media has increased from zero to US$ 12 Billion/year. For an overview of Japan’s media markets – see “Japan’s Media“.
How to make marketing messages a pleasure rather than annoying?
How do we succeed? Crafting brands for life.
Put people first, not just consumers. Real people with real lives.
Build brand love.
Unlock the magic.
The brand love triangle
How do you create a conversation people want to participate in?
We use the “brand love triangle. “The people we serve” are in the center. The three edges of the brand love triangle are:
Purpose (brand point-of-view) <— brand history dive
Product truth <— product dive
Human truth <— people immersion
Ray Bremner, President & CEO of Unilever Japan: Real people with real lives
“Dove Real Beauty Sketches” by Steve Miles
Brands need a purpose, a point of view. Before 2002 Dove did not have a purpose.
Steve Miles talking about Dove and himself:
93% of women do not think they are beautiful – men are opposite: 93% of men think that they look just great. Dave Miles (and Dove’s) point of view is that everyone is beautiful. This point of view is expressed in “Dove Real Beauty Sketches”, which won the Titanium Grand Prize and 10 Gold Lions at Cannes 2013:
As of today, “Dove Real Beauty Sketches” has 61,767,827 views on YouTube, which is not as much as PSY’s Gangnam Style with 1,888,086,686 views, but still – pretty amazing.
Another example of brand communication is Harley Davidson, which signifies “Freedom of the Road”, independent character. Harley Davidson creates a bond to customers by presenting each customer with the “umbilical cord”, the belt with which the Harley Davidson motor bicycle was tied down during the transport from the factory to the customer.
Focus: In 2000, Unilever had 1600 brands and today 400 brands.
Q&A
Question: How many of your campaigns in Japan are global campaigns? How many are Japan-only?
Answer: practically all campaigns for all international brands of any company are made in Japan for Japan. That is not to say that global ideas do not work. In fact in most cases International Brands have the same brand and advertising positioning in Japan as elsewhere in the world. What does differ for Japan is that often Japanese consumers have different usage habits, have different views about the world and the cues within the advertising can leave different impressions on Japanese minds. The Japanese consumer is highly observant of small details in advertising ; much more so than the average European for example.
That means that we test Global campaigns but very often we have to create Japan only executions so that how we express the idea is done totally with the Japanese consumer in mind. This is more costly and time consuming but essential for success.
On Thursday January 16th, 2014, NTT Docomo announced the postponement of mobile phone handsets based on the TIZEN operating system. This is actually the second time that NTT Docomo has postponed the planned introduction of TIZEN handsets, so it might become doubtful whether NTT Docomo will ever introduce TIZEN handsets.
In the announcement NTT Docomo essentially said that with the current market situation in Japan, it makes no commercial sense for Docomo to introduce a third smartphone operating system to the market.
The French journal Les Echos interviewed me about Docomo’s repeated postponement of TIZEN OS handsets. Here some notes I wrote up to prepare for the interview:
Both for handset makers like HTC or Samsung and it would be a dream to become independent of OS owners/controllers like Microsoft or Google, and for mobile operators like Orange or Docomo, it would be a dream to have an OS they can control, and where they can introduce their own services like Docomo’s “iconcier” personal digital assistant, which is to some extent competing with Apple’s SIRI and with various Google services. Its a dream but realization is a different story. Its not enough to make and further develop and maintain the full OS stack including UI, create a development environment and SDKs as easy to use and competitive with Apple’s and Google’s, app stores, build a developer community who create lots of apps. Its also necessary to make a critical mass of attractive devices, gain a critical mass of market share, create global scale, and most importantly win over all the most important Apps like Facebook, LINE, etc.
With the dramatically increasing complexity and sheer size of software, it becomes harder to bring mobile services to market without global scaleability, or at least a major part of the world, which usually will need to include China. Docomo does not have this global scale, so it will become harder and harder for Docomo to introduce own software services, such as iMode or iConcier.
Docomo has continuously lost market share and recently even net subscribers, and in December for the first time in recent memory succeeded to gain top position in subscriber gains, surely because of the iPhone. In addition, rumors are that Apple demands very high minimum sales shares of operator partners. So Docomo is under double pressure:
to satisfy contract conditions with Apple
to maintain subscriber gains
in addition, Docomo still has a substantial part of “iMode-keitai”, also called “galake” (= “Galapagos keitai”). So Docomo already has a large variety of OS and handset styles, and has recently reduced the number of different handset it supports, so going to Tizen would go against this trend.
Its not the end of Tizen. Tizen can in addition to smartphones also go into embedded applications such as cars, elevators, washing mashines etc.
Stanford Economics Professor Takeo Hoshi thinks that there is a 10% chance that Abenomics will succeed to put Japan on a 2%-3% economic growth path, while the most likely outcome will be 1% economic growth. Read our notes of Professor Hoshi’s talk in detail here.
Can Japanese companies globalize?
“Globalization” of course is not an aim in itself. In Europe and USA there are plenty of companies which are very successful and not globalized. However, Japan could capture much more global value from technology and creativity by creating more global companies: the shining example is SoftBank.
Read legendary Masamoto Yashiro’s viewpoints about globalization at a recent Tokyo University brainstorming event by the President of Tokyo University (Masamoto Yashiro was Chairman of Exxon-Japan, of Citibank-Japan, and Shinsei-Bank, and Board Member of the Construction Bank of China). Masamoto Yashiro says that a change of mind-set is urgently needed.
Until March 11, 2011, Japan’s energy markets were essentially frozen in the structures created in 1952, which again resulted from the war-time nationalization of Japan’s electricity sector (see our Energy Report). Japan’s electricity markets alone are worth about US$ 200 million per year – and this market is now in disruption.
Recently I was invited to brief the Energy Minister of Canada, Mr Joe Oliver, and Sweden’s Trade Minister Dr. Ewa Björling about Japan’s energy markets. My briefings are based on our analysis, which you can find in our Energy Report, and Renewable Energy Report.
The liberalization of Japan’s energy markets will create winners and losers – comparing the financial performance of Japan’s electricity companies and gas companies is an indication of things to come. Actually, only Japan’s electricity markets are being liberalized currently, liberalization of Japan’s gas markets is still for the future.
Disrupting Japan’s game sector
Japan’s game makers have essentially created the global game market, and are ripe for disruption by smart phones and tablets one would think. Indeed, just three Japanese newcomers Gree + DeNA + GungHo alone (there are many more) create more annual net income than Japan’s top 9 game makers combined! The origin of this disruption by newcomers in Japan however is not created by Western companies, and not by smart phones, but goes back to the creation of i-Mode in February 1999 (and some months later EZweb and Jsky). Recently the world is slowly waking up to the fact, that Japan’s game markets is one of the world’s biggest, if not the biggest… and hard for foreign companies to penetrate, unless done correctly…
Ericsson held the Mobile Business Innovation Forum in the Roppongi Hills Tower in Tokyo on October 31 and November 1, 2013 delivering a great overview of the push and pull of the mobile communications industry: technology push, M2M and user pull, as well as how the mobile operators between technology and users can best make customers happy and at the same time monetize their investments, while “Over The Top” (OTT) new comers (Google, YouTube, Amazon.com, Facebook, Twitter and others) seek to disrupt the good old telecommunications world.
Here some key take-aways, read more below:
About 50% of global smartphone, mobile phone and mobile broadband subscriptions are in Asia-Pacific, making Asia-Pacific the most important region in the world, and Japan one of the most important LTE markets.
Switch from voice to data is a differentiator: forerunner telcos see rapid growth (10-12% CAGR) for both revenues and EBITDA over the period 2008-2013, while average telcos see stagnation. The key for telcos is to be a forerunner, rather than an average stagnating telco.
Many products such as XBOX or Apple’s SIRI are linked via networks to a data center. Networks and data centers are disruptive innovation for games and many other sectors. Maybe cars as well.
Open source is coming to software defined networks (SDN), the OpenDayLight community develops software for software defined networks.
Software defined networks create virtualized networks, SDN support “network slices” for different applications. API’s open SDNs to users.
Manufacturers and other industries have rationalized a long time ago, telcos have not yet rationalized, creating big opportunities.
LTE Markets – 5 out of 10 top LTE markets globally are in Asia-Pacific, and the top 3 are in Asia-Pacific (however this table shows the percentage penetration, does not reflect market size. In terms of market size, Japan is doubtlessly No.1:
Mobile communications will dwarf the PC-world. By 2018 we will expect to have:
PCS and tablets: 260 million in APAC (31%) vs 850 million globally
smartphone subscriptions: 2.2 billion in APAC (49%) vs 4.5 billion globally
mobile broadband subscriptions: 3.5 billion in APAC (50%) vs 7 billion globally
mobile phone subscriptions: 4.5 billion in APAC (50%) vs 9 billion globally
Katsuya Watanabe, Deputy Director General, Information and Communications Bureau, Japan’s Ministry for Internal Affairs and Communications (MIC)
Katsuya Watanabe (Charley K Watanabe): ICT Growth Strategy for Japan
Deputy Director-General, Information & Communications Bureau, Ministry of Internal Affairs and Communications (MIC), Japan
Government of Japan – IT Strategic Headquarters: The new internet world had a relatively slow start in Japan. In January 2001 the e-Japan Strategy was formed with the target for Japan to become the world’s most advanced IT nation by 2005, and the IT Strategic Headquarters where formed. In January 2006 the New IT Reform Strategy followed, and in July 2009, the i-Japan Strategy 2015.
The Ministry of Internal Affairs and Communications (MIC) formulated the u-Japan Policy in December 2004, followed by the x-ICT Vision in July 2008.
With the change of Government in September 2009, the New Strategy in Information and Communications Technology formulated.
With the advent of Prime Minister Abe’s Government in December 2012, in June 2013, the new IT Strategy was formulated: “The world’s most advanced IT nation creation”, by the Council on ICT Strategy and Policy for Growth, which was set up in February 2013.
The Ministry focuses on the following trends: Big Data, Sensor Networks, Cloud Computing, and smart phones.
Mission: to be the most active country in the world.
Vision:
Creating new value-added industries
Solving social problems
Improving and strengthening common ICT infrastructure
Issues: economic growth, employment, information transmission capacity, development of cities, super-aging society, resource problems, open innovation, cybersecurity, utilization of personal data
Prioritized projects are:
Creating new value-added industries:
data utilization
broadcast and contents
agriculture
local revitalization
Solving social problems:
Disaster prevention
Medical, nursing, health care
Resources
local revitalization
Mr Watanabe introduced several industry-academia-government collaboration projects addressing these priority issues. The economic effects by 2020 of creating new industries stimulated by these government programs are estimated as follows:
super-aging society sector: 23 trillion yen (US$ 230 billion)
geospace sector: 62 trillion yen (US$ 620 billion), from today’s 20 trillion yen (US$ 200 billion) market size
A further program is the creation of ICT Smart Towns in Japan, especially also to build towns resilient against disasters.
John Rossant: A people-centric vision for future cities
Founder and Chairman of New Cities Foundation
By 2050, around 70% of the world’s population is expected to reside in urban areas.
Mobile applications transform cities, and in the ideal case create “people centric cities”, an example: AppMyCity!
Panel “Society in transformation”(left to right): Mats Olsson (Ericsson), Katsuya Watanabe (MIC), John Rossant (New Cities Foundation), Douglas Gilstrap (Ericsson)
Business in transformation
Jan Signell, Head of North East Asia and member of Ericsson Global Leadership Team
Jan Signell: Ericsson in Japan, China, S-Korea
Head of North East Asia Region, President of Ericsson-Japan
The first Ericsson distributor travelled to Japan in 1894 – more than 100 years ago.
Super high smartphone penetration and usage in Japan+China+S-Korea: Japan has 76% smartphone penetration, 49% of Chinese make purchases on their smartphone every week, networks have to be prepared.
Hiroyasu Asami, Managing Director of Smart-Life Business Division, NTT-DOCOMO
Managing Director of Smart-Life Business Division, NTT-DOCOMO
NTT-DOCOMO aims to be the customer’s partner for smart-life.
In the transition from traditional feature phones to smartphones including tablets, NTT-DOCOMO sees a new potential market emerging: video, shopping, books, services and contents are booming.
The center of the mobile eco-system (and value creation) is shifting to higher layers.
NTT-DOCOMO seeks effective utilization of its business assets:
Postpaid subscriptions (99.7% postpaid)
VAS sales at mobile shops: DOCOMO has 2,400 carrier DOCOMO branded shops
Handset control: DOCOMO sells handsets with value added services (VAS)
DOCOMO seeks to create new markets in 8 business areas:
Commerce
Finance/payment
Health care/education
M2M
Safety/security
Environment/ecology
Aggregation/platform
Media/content
The basic concept is to bring smart life into reality, and to become a smart life partner. To improve customer satisfaction and to improve corporate value.
DOCOMO is in the process to transition from the traditional i-Mode and i-Menu services on feature phones, to d-market and d-menu for the multi-OS environment (with Google/Android, Tizen, iOS and other OS).
Revenues from new business of DOCOMO increased from US$ 4 billion (FY2011), to US$ 6 billion (FY2012) and is expected to increase to US$ 11 billion by FY2015.
About 300 parties participate in Japan’s ITS programs, lead by the ITS Promotion in the Cabinet office of Japan.
Major cooperative projects are:
ASV-5 (V2V, V2P) by the Ministry for Land and Infrastructure and Transport MLIT
Joint research (V21) by MLIT and NILIM
DSSS/Green wave (V21) by the Nation Police Agency
Key issues are:
Standardization
Common hardware
hybrid communication
sustainable business model
positioning technology
Key targets are to achieve fatality rates below 2500 by 2018, and to reduce traffic congestions to one-half by 2020 compared to 2010.
Honda develops autonomous driving with the aim to realize “the joy of mobility” with safety and freedom.
The vision: As Japan aiming for the safest transportation in the world, we hope to deploy cooperation system in collaboration with government and car OEMs, in four phases. Phase 1: basic services Phase 2: advanced services Phase 3: integrated services Phase 4: autonomous services
Panel (left to right): Akira Yamaguchi (Orient Corporation), Hiroyasu Asami (NTT-DOCOMO),Masashi Satomura (Honda), Jan Signell (Ericsson)(Ulf Ewaldsson, CTO, Ericsson
Ulf Ewaldsson
CTO, Ericsson
A perfect storm:
Network coverage and quality is good enough
Business models make data affordable
App-centric services become mainstream
Smartphone penetration is reaching critical mass
however, for mobile operators there is a HUGE difference between the frontrunner’s revenue and EBITDA growth compared with stagnant revenue/EBITDA for average operators. Key for mobile operators is to be strongly growing frontrunner – not a stagnating average operator.
To move from an average no-growth operator to a fast-growing frontrunner, a mindshift is needed from:
problem focus to opportunity focus
maximizing old revenues to innovating new revenues
connectivity as a commodity (“dumb pipe”) to connectivity as differentiator
from tech silos to tech synergies
Ericsson uses six growth codes:
“Streetwise metrics”, experience centric KPIs
“Show casing”: quality led marketing
Redefine subscription: “unboxing”
Open-ended innovation: “ecosystematic
Visionary collaboration: “co-partnering”
Visionary investing: “gap minding”
Yung-Ha Ji, Head of Network Strategy Dept., KT Corporation
Yung-Ha Ji: How to migrate to future ICT network
Head of Network Strategy Department, KT Corporation
In the IDI/ICT Global Development index ranking, S-Korea ranks 1st globally for broadband, while the Scandinavian countries rank 2nd, 3rd, 4th and 5th, and Japan ranks 8th, followed by UK on place 9.
kt will cover 99% of S-Korea’s population with LTE network based on 20MHz Bandwidth in the 1.8GHz band. With the BenchBee speed test, download speeds of 44 Mbps are achieved with a Category 4 LTE-A phone.
kt saw explosive growth of data traffic: 350 times increase over the 4 years from January 2009 to September 2013. Monthly data usage is 2.2Gb for LTE and 1.2Gb for 3G phones. Total data traffic is about 20,000 TeraBit/Month in September 2013.
kt has the world-first LTE network using virtualization cloud technology.
kt introduced a series of services including Web-enabled IPTV, Giga-Internet FTTH premium services, olleh TV mobile, LTE broadcast, “Total Advertising Open Community” (TAOC) – using targeting of advertisements to differentiate from OTT operators.
Example of an innovative service: if you click an advertisement and watch an ad, you are rewarded with increased transmission speed.
Akira Yamaguchi: Mobile payment systems in Japan
Exec Officer Retail finance and credit cards, Orient Corporation
Jakob Navok, Director of Business Development, Square Enix
Jacob Navok: Games over the network
Director of Business Development, Square-Enix
Games are the ultimate application! Worldwide game industry revenues are US$77.4 billion in 2013, adding all segments from retail hardware to software and services.
Hardware used to be the driver in the past, but today the network drives everything, and networks bring disruption to game design, business models (“free-to-play” is a marketing model – not a business model). Business models include: micro transactions, subscriptions, advertisements and digital pricing.
Marketing disruption include: “free-to-play”, cross-promotional networks, and app-stores.
Video had a dramatic impact on networks, but games have not.
Interactive media bring the next revolution: SONY acquired Gaikai (US$ 400 million), and Microsoft announced Xbox Cloud services (US$ 700 million).
Server side rendering and developer innovation will create game demand on many devices.
Speed is key!
Dan Simmons, Reporter and Producer, CLICK, BBC
Dan Simmons
Reporter and Producer, CLICK, BBC
Dan Simmons showed how smart phones are a second screen accompanying movies, PCs and TV. 60-80% of Americans use a second screen, and 46% use a smart phone.
Eyeballs move to iPads… the question is: who owns the second screen!
CBS made US$ 10 million off advertising, but advertising ads during superball on the internet – not on TV!
TV is about raising emotions, and feedback at the moment, immediate feedback is incredibly valuable. A 2nd screen can give a 360 degrees view.
Dan mentioned the APP-movie, where visitors to the movie theatre downloaded an App to their smartphone and received message to their App during the movie. The messages need to be frame-accurate, and today’s networks are not good enough to ensure frame-accuracy. People with smartphones and using the App knew who the murderer was at 65 minutes into the movie, while visitors without smartphone and App had to wait until 80 minutes into the movie before they know who the murderer was. Initially it was thought that this could be a problem, but it turned out to be a positive part of the enjoyment for the audience. A further attraction was, that visitors could keep the App on their smartphone, and the movie owner could reach viewers long after the performance was over, and they had long left the movie theatre, keep the contact, and potentially create follow-on business.
Panel (left to right): Dan Simmons (BBC), Jacob Navok (Square-Enix), Ulf Ewaldsson (Ericsson), Yung-Ha Ji (KT Corporation)Adrian Ionel, CEO, Mirantis
Shoji Nemoto: Our mission is to fulfill & inspire the desires of users
Question: 3D-TV failed. How can we know that 4k-TV will be successful?
Shoji Nemoto: 3D is not only a consumer product. 4k-TV also has industrial applications, such as telemedicine and other medical applications. SONY cooperates with Olympus for medical applications.
Adrian Ionel
CEO, Mirantis
Today for every new product you need a network and a data center:
SIRI: Apple invested US$ 1 billion in a data center
X-BOX: Microsoft built a data center
Open source is extremely powerful vs closed systems:
opensource is created by users, users are involved from the beginning and users are extremely powerful
Open: anybody can contribute
Closed source vs open source:
closed source: traditional hierarchical industrial structure, waterfall model, top-down
open source: works like nature, social network, meritocracy and transparency, very different to traditional industrial structure
Examples for open source: Linux, JAVA, Big data.
Open source creates new business models. Facebook, Google, Amazon.com are only possible with open source. Gigantic data centers are only possible with open source.
Most major players invest in open source.
Taro Kodama, Country Growth Manager, Facebook Japan
Taro Kodama
Country Growth Manager, Facebook Japan
No. 1 Facebook employee in Japan.
“We can’t just copy what we did in Japan – we must reinvent in Japan”
Facebook’s complacency about mobile is surprising. Its this kind of complacency that kills companies (Forbes.com, February 2012)
Facebook’s future is in mobile. Mobile is THE strategy for Facebook (Forbes.com, May 2013)
Facebook: over 874 million users on mobile, 49% of revenue is now generated from mobile, up from 0% last year.
Internet traffic is shifting to mobile: 13% of global internet traffic is on mobile.
Panel (left to right): Ulf Ewaldsson (Ericsson), Adrian Ionel (Mirantis), Taro Kodama (Facebook)
Innovation and technology evolution
Ulf Ewaldsson, CTO, Ericsson
Ulf Ewaldsson: “Transforming networks
CTO, Ericsson
We see cities as organisms.
Trendspotting:
scarce spectrum
simplicity and automation
continued traffic growth
from nodes to systems
mobile entreprise
blurring of IT and telecom
Concept of “Network slices”:
Network performance needs depend on industry, beyond just smartphones.
A matrix of industry needs covering the following industries: cars, processing, utilities, transport, media, and NSPS, healthcare etc. Which have different needs for: throughput, latency, QoS, volumes, coverage, capacity, security and location.
A common network platform includes dynamic and secure “network slices” with different specifications for different industries and applications.
Three new products:
Ericsson Radio Dot System
SDN on a chip: SNP 4000
Cloud on a blade: Ericsson Cloud System
Technology in-depth sessions
Erik Ekudden, Head of Technology Strategies, Ericsson
Network Slices: Service Provider (SP) Software Defined Networks (SDN), Network Functions Virtualization (NFV) and Cloud
Erik Ekudden
Head of Technology Strategies, Ericsson
Service Provider based Software Defined Networks (SP SDN) are on the way to deployment. The path to deployment includes: technology, business model development and operations. Currently we are still midway in the technology development phase, business model development is in the early phase, and we are just before operations and deployment.
Network functions are virtualized in the DC/cloud infrastructure. Functional layers of the network are virtualized, and networks become open to developers.
Networks are elastic and we have “network slices” for different applications.
OpenDayLight
Ericsson is leading participant/founder in the open source “OpenDaylight” LINUX community, the first release of the Hydrogen Code was on September 13, 2013. OpenDayLight is an open source community developing software-defined networking (SDN).
Daniel Ehrenstrahle, Head of Strategy & Portfolio, BU Networks, Ericsson
Connecting the dots in the Networked Society
Daniel Ehrenstrahle
Head of Strategy & Portfolio, BU Networks, Ericsson
Business cases and clear rationale why technology is introduced is necessary.
We need to redefine how network performance is defined: “app coverage” defines network performance not in terms of technical data alone, but in terms of usability of each app. App coverage for video will be different than for voice, or low intensity data applications.
70% of usage is indoors, therefore we need indoor coverage, and Ericsson does not believe in Femto-technology, and introduces the Radio Dot System. Launch will be in 2H 2014 for 3G and 4G and for WiFi later. Up to 4 channels per unit.
Component based architecture: AIR = antenna integrated unit SSR = Edge router
Ericsson “DOT”Ericsson Radio “DOT” System: RJ45 Antenna Mounting Unit and Active Antenna Element taken apartEricsson “DOT” system, RJ45 connector socket
Monetizing the network assets
Beau Atwater
Head of Strategy and Business Intelligence, BU Support Solutions, Ericsson
Tomas Ageskog, Head of Consulting and Systems Integration, BU Global Services, Ericsson
Business Transformation – Ericsson Consulting and System Integration (SI)
Tomas Ageskog
Head of SI Core, IP & Media, Ericsson
Manufacturing and other industries have rationalized decades ago. Telcos are not yet rationalized.
OSS/BSS need to be good and fast to make money.
A revolution will happen in the broadcast space when processes are being rationalized.
In Australia, Telstra spent US$ 1.1 billion for a billing system.
As another example, a Tier-1 European telco operator had 62 different billing systems.
Challenges:
Business agility,
time to market,
from network centric to customer centric,
Next generation networks, mobile broadband and cloud computing
Roles in new business models and eco-systems
Ericsson Global Services division grew from SEK 29 billion and 8000 people in 2003 to SEK 97 billion and 60,000 people in 2012.
TowerJazz acquires three of Panasonic’s large written off wafer fabs for around US$ 100 million
Massive market entry to Japan for TowerJazz
Nikkei (the world’s biggest business daily, see our J-Media report) reported as their top headline yesterday, that TowerJazz is planning to acquire interests in three of Panasonic’s reportedly largely written-off semiconductor fabs valued at about US$ 100 million.
Nikkei reports that Panasonic plans to spin out three fabs into a separate company, to be owned 51% by TowerJazz and 49% by Panasonic:
Uozu-shi in Toyama-ken (富山県魚津市)
in Tonami-shi in Toyama-ken (富山県砺波市), and in
Myoku-shi in Niigata-ken (新潟県妙高市)
TowerJazz entered Japan’s market by acquiring the Nishiwaki semiconductor fab near Nishiwaki-shi in Hiyogo-ken near Kobe.
TowerJazz is a leading Israel-USA foundry company traded on NASDAQ. TowerJazz in 2011 acquired a semiconductor fab in Nishiwaki-shi in Hiyogo-ken (兵庫県西脇市). The Nishiwaki fab was initially built by a joint-venture between Texas-Instruments and Kobe-Steel, and was later acquired by Micron. TowerJazz acquired the Nishiwaki-fab from Micron in 2011.
We believe that the driver for these transactions are both PUSH and PULL:
PUSH:
Panasonic’s need for capital
Panasonic’s need to withdraw from loss-making operations (Panasonic’s semiconductor operations reported YEN 20500 million (US$ 200 million) operating losses for revenues of YEN 184 billion YEN (US$ 1.8 billion) and need to focus on a smaller number of core businesses
need for investments in the semiconductor fabs to upgrade equipment and Panasonic’s difficulties to supply such capital
In the past Matsushita (Panasonic was previously named after its founder) was nick-named “Matsushita Bank” because of its solid financial situation. However on October 31, 2012, President Kazuhiro Tsuga announced that “Panasonic is an unusual company” referring to Panasonic’s financial predicament: Panasonic had reported YEN 754.2 billion (US$ 7.5 billion) net losses for FY2012 (ending March 31, 2013). At the same time, President Tsuga also announced a program to revive Panasonic. This event is known as the “Panasonic shock”.
Moving semiconductor fabs from Panasonic to TowerJazz management or co-management/co-ownership is a good example of how Japanese management can be globalized.
SIM free iphone japan finally arrive in Japan – directly sold by Apple.
SIM-lock free iPhone 5s and iPhone 5c are now officially sold via the Japanese section of the official Apple.com webstore.
It has been official policy recommendation (not regulation) by Japan’s General Affairs Ministry (総務省) for Japan’s mobile operators to sell SIM-free mobile phones, or to remove the SIM-lock of phones when requested by customers. However, Japan’s mobile operators have been very shy to follow the Ministry’s recommendation, and particularly Japan’s operators did not follow this recommendation for the iPhone.
Apple has now taken the step to offer SIM-free iPhones (model 5s and 5c) officially via the apple.com webstore in Japan.
This is a further step on the way of disruptive innovation sweeping through Japan’s mobile phone sector, which evolved from NTT monopoly and leased phones, via step-wise liberalization, entry of newcomers, and now domination by three groups NTT-DoCoMo, KDDI/AU and Softbank.
SIM-free iPhone sales in Japan- What will be the implications?
For customers, it will be much easier now to switch operators in Japan under the Mobile Number Portability (MNP) program keeping their iPhone. It will be seen, whether operators follow up with their number portability procedures to include the iPhone, which was not the case until recently.
For customers, roaming and international travel will be easier, customers will be able to use their Japan-bought SIM-free iPhone on foreign networks inserting local foreign operators’ SIM cards. Japanese operators might lose some limited amount of roaming income (which has never been very high, unlike in Europe).
For operators, churn under the Number Portability Program is likely to increase, increasing competitive pressure on operators to differentiate via radio connectivity, customer service, and innovative services.
How to get and use a SIM-free iPhone in Japan?
We have not yet done this ourselves, but what we hear is:
Buy a SIM-free iPhone from the Apple online Apple-store (apparently SIM-free iPhones are not available from operator stores or physical Apple stores). Take care, the models may differ depending on which operator you want to use the iPhone on, i.e. Docomo or KDDI/AU or Softbank. Better check with the operator about prices and conditions before you purchase the SIM-free iPhone, just to be sure.
Take the iPhone to a mobile operator store (i.e. Docomo, KDDI/AU or Softbank, depending on which type of iPhone you have bought), subscribe for service and get a SIM-card for the iPhone.
There are also some mobile virtual operators (MVOs) in Japan, i.e. operators which purchase capacity from Docomo, Softbank or KDDI, and then retail this capacity to end users. Check their conditions, service speed, bandwidth etc before you buy.
Its not well known in Europe and US yet, but SoftBank is a very large company, and aiming to become the world’s largest company
SoftBank is really a very large company, driven by the charismatic founder Masayoshi Son. To get a feeling for the size of SoftBank, while the investment in Supercell is a large amount of money by anybody’s standards, its about 5% of SoftBank’s acquisitions this year alone (in addition to M&A type investments, SoftBank also invests substantial sums in networking equipment and other telecom business infrastructure and data centers).
SoftBank invested in about 1500 companies, the most famous currently being Alibaba
Overall SoftBank invests in about 1500 companies or more: SoftBank takes a venture capital approach to this portfolio. Overall SoftBank investments are incredibly successful. As an example, look at the currently important Alibaba case:
Softbank acquired 36.7% of Alibaba in 2000 for US$ 20 million.
Alibaba’s market cap will be determined after its IPO, but currently figures between US$ 100 billion and even up to US$ 250 billion circulate. This would value SoftBank’s 36.7% stake in Alibaba at somewhere between US$ 36.7 billion and US$ 91 billion, a return on initial investment between 1835 and 4550 times!
While SoftBank’s overall portfolio is outstandingly successful, not every single investment is successful, as is normal for a venture type investment style.
This year alone, SoftBank investments and acquisitions amount to about US$ 30 billion
This year SoftBank’s direct investments and acquisitions alone are on the order of US$ 30 billion and include:
mobile phone distributor Brightstar which is another US$ 1.26 billion
Talouselämä questions about SoftBank and its investment in Supercell and my answers:
What are SoftBank’s targets? SoftBank wants to become one of the most important companies globally, has a 30 year plan and a 300 your plan
How does SoftBank integrate acquisitions? Case-by-case. In some cases, e.g. Vodafone-Japan KK, Softbank totally absorbed the company and its assets became much of the starting point of SoftBank Mobile, however today’s SoftBank Mobile is a dramatically different company compared to Vodafone-Japan KK, which according to Masayoshi Son in recent interviews “was going south”.
How important are games for Softbank? SoftBank is major investor in GungHo, which is one of the world’s most successful smartphone game companies.
What other businesses does SoftBank concentrate on, and what kind of goals does it have? SoftBank today focusses on mobile communications and internet, however is also active in other areas. For example, SoftBank is aggressively building an energy business, with focus on renewable energy, which includes renewable energy investments in Mongolia for example. SoftBank‘s more than 1500 investments include Alibaba and Yahoo Japan KK.
To understand SoftBank better, read our report on SoftBank, an analysis of SoftBank, history, current data, and the context.
Understand Japan’s games sector and its disruption
Report “Japan game makers and markets” (pdf file, approx 400 pages, 140 figures)
Supercell investment leverages paradigm shift, time shift and market disconnects
Smartphones and the “freemium” business models are bringing a dual paradigm shift to games and create a new truly global market. To take advantage of this global paradigm shift, its necessary to overcome the cultural disconnects between markets. SoftBank and GungHo‘s investment in the Finnish smartphone/tablet game maker Supercell, announced on Oct. 15, will help to overcome the disconnect between Japan’s and other game markets for both Supercell and GungHo.
One of SoftBank‘s aspects is it’s “time-shift” investment model, another is SoftBank‘s 30/300 year vision – both are important factors to understand the Supercell investment.
Comparing Supercell’s US$ 3 billion valuation with Japanese game companies (note that the market cap for the full SONY Group is shown here)
This Figure contrasts the market caps of new mobile and smartphone centric game companies (GungHo, Supercell, DeNA and GREE) with traditional console, video game and arcade game companies.
SoftBank announced that because of the majority investment, Supercell will become a subsidiary of SoftBank, and GungHo will account for Supercell’s profit/loss under the equity method.
Comparing Supercell’s US$ 3 billion valuation with Japanese game companies (note that the market cap for the full SONY Group is shown here) and SoftBank
GungHo and Supercell both are top-ranking mobile game companies: GungHo inside Japan with “Puzzle and Dragons”, and Supercell outside Japan with “Hay Day” and “Clash of Clans”. Expect both to leverage each other’s resources.
Both GungHo and Supercell show explosive growth:
GungHo’s operating profits increased 4050% (x 40) for Jan-June 2013 compared to the same period one year earlier.
Supercell’s revenues (mainly in-game purchases) jumped 500x from EURO 151,000 in 2011 to EURO 78 million in 2012.
Culture can be an issue between Japan and other countries, however, SoftBank has invested in more than 1000 comparable companies, and many of SoftBank’s investments have been outstandingly successful including Alibaba and Yahoo.
However, investment and management support by SoftBank does not automatically guarantee success in Japan – despite SoftBank’s investment and support, Zynga closed operations in Japan earlier this year. Success in Japan will remain Supercell’s responsibility, despite SoftBank’s and GungHo’s help and investment – as Zynga can tell.
SoftBank aims for global No. 1 position: Learn more about SoftBank, Masayoshi Son, and his 30/300 year vision for SoftBank
Report on “SoftBank today and 300 year vision” (approx 120 page, pdf file)
How do you see Yahoo KK’s latest move to reduce or eliminate merchant’s fees? Do you see this as an attack by SoftBank/Yahoo on Rakuten?
SoftBank and Rakuten are clearly two very different companies – they don’t compete on the same ground. SoftBank is a telecom company with a Government spectrum license – a quasi-monopoly on a certain wavelength spectrum. Rakuten has no such monopoly, but is an internet based ecommerce company.
How do you see the future of Rakuten now?
Rakuten is clearly squeezed between SoftBank/Yahoo on one side and Amazon.com on the other side.
Amazon.com’s Jeff Bezos, SoftBank/Yahoo-KK’s Masayoshi Son and Rakuten’s Hiroshi Mikitani are clearly some of the most brilliant minds on this planet earth, so any battle between these three is phenomenal.
You ask about Hiroshi Mikitani/Rakuten – he clearly has his job cut out to compete with Masayoshi Son and Jeff Bezos – that’s not easy at all.
In particular, Amazon.com has a lot of strengths in areas, where Rakuten does not compete, e.g. AWS – Amazon Web Services, which is a very important cloud services company.
In terms of globalization, I also see challenges ahead for Rakuten. Even though Rakuten has recently decided to train staff in English conversation, its not a trivial job for an essentially Japanese company to globalize.
How do you see globalization of Rakuten and Softbank?
SoftBank clearly has taken a big step in acquiring Sprint in USA. SoftBank’s very big challenge is now to make Sprint a very big success and this will take some time. Rakuten also has a huge challenge to globalize, and it will be interesting to see if Rakuten can become a global company
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.
(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.
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.
Gerhard FasolGerhard Fasol
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.
Gerhard Fasol’s lecture at Stanford University: “New opportunities vs old mistakes – foreign companies in Japan’s high-tech markets”
Since last financial year (ended March 31, 2013), three newcomers (GungHo, DeNA, and GREE) combined achieved higher operating income and higher net income than all 9 iconic Japanese game companies (Nintendo + SONY-Games + SegaSammy + BandaiNamco + Konami + TakaraTomy + SquareEnix + Capcom + TecmoKoei) combined.
While the newcomer’s revenues are increasing (except for GREE), the traditional 9 game companies’ revenues peaked in 2008, and have been falling rapidly ever since.
Clearly Japan’s the 2003-2005 mergers in Japan’s game sector did not make the sector “future proof” – more dramatic changes will be either initiated by the iconic incumbents, or imposed on them from newcomers such as GungHo.
Note that the position of foreign entrants remain weak in Japan’s game market overall.
Three new game companies (GungHo, DeNA, GREE) overtake Japan’s 9 iconic game companies in operating profits (note that the last data point for 2013 for GungHo is only for the first 6 months, i.e. full year results will show that the “new” game companies are doing even better compared to the “old” game companies than visible in this figure) Source: https://www.eurotechnology.com/store/jgames/Three newcomers (GungHo, DeNA, GREE) achieve higher net profits than all 9 Japanese game icons combined (note that the last data point for 2013 for GungHo is only for the first 6 months, i.e. full year results will show that the “new” game companies are doing even better compared to the “old” game companies than visible in this figure) source: https://www.eurotechnology.com/store/jgames/
Japan game market disruption: online and smartphone came company GungHo with Puzzle and Dragons
GungHo started as OnSale KK, a joint-venture between SoftBank and the US company OnSale Inc., the purpose of this JV was Japan market entry for this US company, an ecommerce company. OnSale KK pivoted from ecommerce to games and started to distribute the Korean game Ragnarok and others, and changed its name to GungHo. GungHo’s breakthrough came with “Puzzle and Dragons” – Jan-June 2013 operating profits increased 4050.1% (four thousand fifty percent) compared to the same period one year ago. GungHo is part of the SoftBank group. More in our report on “Japan’s game makers and markets”
Japan game market disruption: GREE
GREE on the other hand – although a successful new venture in Japan’s game sector – is not doing so well currently: reported revenues and income have both been falling. Essentially, GREE has difficulties to implement the plan to build a global business based on their Japanese methods and business models. The factors are both “hard” and “soft”, i.e. business models, and human factors. Details on GREE’s performance, and reasons for GREE’s current issues in our report:
Japan’s iconic game companies (Nintendo, Sony, Sega-Sammy, Bandai-Namco, Konami, Takara-Tomy, Square-Enix, Capcom, Tecmo-Koei) see brutal disruption by smart phone games
Japan game sector disruption: Three newcomers (GREE, DeNA and GungHo) achieve higher operating income than all top 9 incumbent game companies combined
Japan’s top 9 iconic game companies, Nintendo, Sony, Sega-Sammy, Bandai-Namco, Konami, Takara-Tomy, Square-Enix, Capcom, Tecmo-Koei created much of the world’s games markets, and many of the world’s most loved game characters.
They are now seeing brutal disruption.
Japan game sector disruption
With the Financial Year ending March 31, 2013, for the first time, just three Japanese newcomers (GREE, DeNA and GungHo) achieved higher operating income than all top 9 Japanese iconic incumbent game makers:
In FY2012 combined operating income of all 9 incumbent game companies was YEN 67.6 billion (US$ 700 million), combined operating income of the 3 newcomers was YEN 174 billion (US$ 1.8 billion) – even though for GungHo only the first 6 months of 2013 are included in the calculation.
Operating income of Japan’s top 9 games companies declined steadily since 2009 – combined operating income for FY2012 was YEN 67.6 billion (US$ 700 million)In 2013, three newcomers (GREE, DeNA, GungHo) achieved higher operating income than all nine established Japanese game makers. Combined operating income for FY2012 was YEN 174 billion (US$ 1.8 billion)
Because of its size, Nintendo has the greatest weight in the overall performance of Japan’s traditional game sector. Nintendo has been dramatically affected by the shift from traditional game consoles to smartphones. Still, Nintendo (as all other Japanese iconic game companies) has tremendous resources, tremendous creativity, globally loved characters and brands, and huge cash reserves. I don’t think that Nintendo (and other Japanese game companies) risk as much to follow Nokia and RIM/BlackBerry’s fate, but may be more resilient. However, there has been substantial consolidation in Japan’s games sector of recent years, and the current challenges could lead to more M&A in Japan’s games sector.
The disruptors
We have only picked three important new market entrants – there are many more in Japan’s vibrant mobile game venture scene.
DeNA
DeNA initially started as a mobile auction group, and sees continuous strong growth and high margins.
GREE
Of these three, GREE is currently suffering some set-backs originating from GREE’s business model. GREE started as a SNS and social game platform on Japan’s “galake” (Galapagos Keitai) relying on Japan’s mobile internet services i-Mode, EZweb and Yahoo-Mobile, where operators traditionally take 9% commissions. Initially GREE tried to transfer this “platform on platform” business model to other countries, but this does not seem to work out. So GREE is now pivoting to original games, and has seen setbacks.
GungHo
GungHo started as a joint-venture with a US company, the purpose of this JV was Japan market entry for this US company. GungHo then pivoted away from this joint-venture to become a games company, and produced a series of games, which all did well, but not extraordinarily well. That is, until GungHo created “Puzzle and Dragons”, which is growing spectacularly well: Jan-June 2013 operating profits increased 4050.1% (four thousand fifty percent) compared to the same period one year ago, and net profits increased 2507.8% (two thousand seven percent) compared to Jan-June one year ago.
The disruption
The shift to smartphones is hitting Japanese traditional iconic game makers from all sides:
the shift from TV to tablets and mobile phones
the shift from dedicated game consoles to smart phones and tablets
the shift from Japan’s “galake” feature phones to smart phones
the shift in business model from traditional US$ 40-60 game cassettes-type to free game downloads with in-game purchases and advertising
…and more
Japan’s game sector report
Learn more: read our report on Japan’s game makers and markets (approx. 400 pages, pdf file)
Global No. 1 (Applied Materials) and No. 3 (Tokyo Electron) plan merger
Subject to regulatory approval in different jurisdictions
Global No. 1 (Applied Materials) and No. 3 (Tokyo Electron) semiconductor manufacturing equipment makers on September 24, 2013 announced their “merger of equals” – creating a company with a nominal market capitalization of US$ 31.5 Billion, in one of the largest mergers of a Japanese company with a foreign company ever. I was this morning interviewed by BBC to comment – here additional background material and comments.
Tokyo Electron: excellent results in a very difficult industryApplied Materials margins
Summary of the Tokyo Electron & Applied Materials merger:
A new company will be created:
combined market capitalization of US$ 31 billion and about 24% market share
dual headquarters in Tokyo and Santa Clara, incorporated in The Netherlands
Chairman=Tetsuro Higashi (Tokyo Electron)
CEO=Gary Dickerson (Applied Materials)
CFO=Bob Halliday (Applied Materials)
ownership – corresponds almost exactly to the market capitalization ratio:
68% Applied Materials shareholders
32% Tokyo Electron shareholders
Anti-trust approval still outstanding:
Anti-trust authorities in several jurisdictions are likely to examine this planned merger, however it seems likely that there will be no major problems, since the product portfolios of both companies are quite complementary.
Currently Applied Materials has about 14% market share of semiconductor manufacturing equipment and Tokyo electron about 10%, thus about 76% of the market are supplied by competitors.
Of course the “pricing power” of the combined company could increase in certain cases, which could be also a driving force for this merger.
Market shares of IC manufacturing equipment market pre merger
Applied Materials: US$ 5.5 billion (14.4%)
ASML: US$ 4.9 billion (12.8%)
Tokyo Electron: US$ 4.2 billion (11.1%)
Lam Research: US$ 2.8 billion (7.4%)
KLA-Tencor: US$ 2.5 billion (6.5%)
Market shares of IC manufacturing equipment market post merger
Applied Materials + Tokyo Electron: US$ 9.7 billion (25.5%)
ASML: US$ 4.9 billion (12.8%)
Lam Research: US$ 2.8 billion (7.4%)
KLA-Tencor: US$ 2.5 billion (6.5%)
“Merger of equals” – really?:
Yes and no. Ownership of the merged company is split between shareholders of Applied Materials (68%) and Tokyo Electron (32%) according to current market capitalization ratio, and both CEO and CFO will be from Applied Materials. This is a clear message to Japanese corporations that market capitalization does matter dramatically. As we have shown in previous posts, the market capitalization of Japanese electronics companies today is dramatically low (considering revenue size, the glorious past and future potential) – so in any similar merger “of equals” even Japanese electronics giants could be the junior partner. This point was also addressed in a recent presentation by Hiroshi Mikitani. These sensitive issues were extremely skillfully and successfully handled by Renault and Nissan. Carlos Ghosn has said in this context that he believes a full acquisition would not have been successful.
“One of the largest mergers between a Japanese and a foreign company” – if executed and successful
There is some confusion on this point in the news articles that I have seen. The current market capitalization of Tokyo Electron is approx. US$ 10.07 billion.
By far the largest acquisition of a Japanese company by a foreign company was the acquisition of the Japan Telecom Group by Vodafone. Since this acquisition was done (and later undone) by a large number of separate transactions, it is difficult to put a specific size on this acquisition. Our estimation is that this acquisition was on the order of US$ 20 billion or higher – and was not successful longterm, some reasons are outlined here.
Large scale acquisitions of Japanese companies by foreign companies include:
Japan Telecom Group acquisition by Vodafone (undone: now part of SoftBank)
Nikko Cordial acquisition by Citigroup (undone: now SMBC-Nikko)
Japan Leasing acquired by GE
Nissan Motor partnership with Renault (minority stake, not acquisition)
Applied Materials and Tokyo Electron – Tax:
Tokyo Electron + Applied Materials plan a joint holding company in The Netherlands. One reason is to have a neutral location following the spirit of “merger of equals”, but tax also plays a role:
Projected tax rate for new holding company on profits in The Netherlands: 17%
Current tax rate on profits for Applied Materials: 28%
Current tax rate on profits for Tokyo Electron: 37%
Applied Materials and Tokyo Electron – Cultural issues:
Not to be underestimated. In our view success of this merger is not guaranteed at all, and will depend to some extent to skillful management of the bridging cultural issues.
Our report on Japan’s electronics industries – mono zukuri:
