JIN-129 -- Going Public in Japan -- Warts and All

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J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the week's business and technology news
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Issue No. 129
Wednesday, April 18, 2001
Tokyo

CONTENTS

+++ Viewpoint: Going Public in Japan -- Warts and All
+++ Noteworthy news
- KDDI "au" brand cellphones to get Java and Bluetooth in June
- High-tech sushi chain to go public on Nasdaq Japan
- NTT offers more low-rate, high-speed telecom services
- DoubleClick set for JPY3.52 billion IPO at month's end
- Upcoming IPOs
+++ Worth a read
+++ Random thoughts

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+++ Viewpoint

Going Public in Japan -- Warts and All

The great strength of the US economy is beyond a doubt its
hyper-creative entrepreneurial engine, of which the entire world
stands back in awe. (Even now, after the Net bubble.) Other nations
have attempted to mimic this enviable aspect of America by setting
up stock markets funding young, promising -- and, in particular,
high-tech -- ventures. Germany's Neuer Market is perhaps the leading
example.

In Japan, two such markets were launched in the past year and a
half: Mothers and Nasdaq Japan. Both want to host new tech
companies, though neither has dislodged Japan's traditional player
for this role, the OTC market (also called the Jasdaq). Undoubtedly
these new markets -- and the three-way competition now under way --
represent the beginning of something good for Japan. The IPO market
in Q1 looked healthy, with 29 companies (not all tech) going public
on Japan's exchanges, raising on average about 1.6 billion yen,
according to Tokyo IPO.

Open Loop, the network security developer we picked as one of five
hot ventures in September 2000, IPOd on Nasdaq Japan in mid-February
at 330,000 yen per share and as of March 30 was at 2.3 million yen.
Access, whose browser is found in i-mode phones, IPOd on Mothers in
late February at 2.1 million yen per share and by the end of March
was at 3.7 million yen. Worthy tech ventures, then, are getting the
lifeblood they need through these new public markets.

One thing, however, is still absent in Japan: US-style transparency.
While corporate governance has been opened in varying ways thanks to
the new exchanges, the kind of transparency present in the United
States still does not exist in Japan. Part of the problem is that,
in Japan, the individual exchanges set the disclosure rules (in the
US, the the SEC does). Thus, if one exchange's disclosure
requirements are too daunting, companies might flock to a competing
market. This problem should be addressed; the Securities and
Exchange Surveillance Commission, for example, might be given more
authority.

But there's something deeper at work. Many Japanese businessmen
consider the act of revealing one's financial information and growth
strategies for all the world to see -- including competitors and the
yakuza -- as stupid and naive. Nasdaq Japan, recognizing this
ingrained attitude, had to make some compromises when setting up
shop. For example, whereas the US Nasdaq requires at least three
independent outside directors on the board, Nasdaq Japan doesn't
require any.

The underlying Japanese attitude that made these accommodations
necessary to begin with is, to put it bluntly, small-minded and
cowardly. It takes courage, not stupidity, to expose your company's
weaknesses so that investors can make informed decisions. One must
be broad-minded enough to see through the fear to the benefits.

On the plus side, many Japanese tech ventures understand all this
and are pro-actively adopting US standards of corporate governance,
even without technically being required to. Many such ventures plan
to expand internationally in the future, and thus want to make
themselves as compatible as possible with the international
community. Nasdaq Japan -- part of the planned global Nasdaq market
-- is particularly appealing to globally minded startups.

Japan has a long way to go if it wants to match the US in terms of
entrepreneurship. The first steps are being taken now by many of the
young, outward-minded ventures going public on Japan's new markets.

-- Steve Mollman

Sources: 1) "Five Hot Startups," September 2000, J@pan Inc
(http://www.japaninc.net/mag/comp/2000/09/sep00_hot_index.html);
2) Tokyo IPO (http://www.ipotokyo.com/infoipo.phtml?id=12)

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+++ Noteworthy news

** KDDI "au" brand cellphones to get Java and Bluetooth in June

Extracts: KDDI revealed parts of its strategy to introduce in June a
Java app download service for its au brand cellphones ... the system
will adhere to the CLDC and MIDP specs, meaning Java apps written
for it will be able to run on both J-Phone's and KDDI's handsets ...
The maximum size of Java applications for the new KDDI service is to
be 50KB (compressed) -- considerably larger than the 10KB limit for
NTT DoCoMo's service and the 30KB for J-Phone's ... The new service
will feature Omron's Jumon middleware, enabling users to work on a
program on one handset from another handset ... In a separate
announcement, KDDI said au handsets from Sony and Toshiba will have
Bluetooth starting in June.

Commentary: So it sounds like Java apps written for J-Phone's and
KDDI's handsets will be able to work on any platform, including one
another's. Makes sense since that was the whole point of Java. NTT
DoCoMo, however, has its own Java, and apps written for i-mode won't
work on other systems. See "DoCoMo's Java Jive-Talkin'" in our April
issue. (Subscribers only until mid-May:
http://www.japaninc.net/mag/sub/2001/04/apr01_docomo.html.) Omron's
Jumon middleware could prove quite interesting, as it enables P2P
communication between handsets. Omron spokesperson Christopher Udell
told us that the aim of one Jumon joint project with Bandai is to
"make it possible for people to play together in the same game by
forming a network through the use of Jumon-equipped mobile phones."
(See "P2P: The Japanese Angle" in our April issue.
http://www.japaninc.net/mag/comp/2001/04/apr01_p2p.html.) 50KB file
apps will be able to do a lot more than 10KB ones. And with
Bluetooth communications between cellphones, we could begin to see a
new kind of P2P wireless network emerge ... (Don't hold your breath,
though, and expect conflicting standards to screw things up as
usual.)

Sources: 1) press release; 2) "KDDI Unveils Plans for
Java-Compatible Mobile Phone Service," Nikkei Byte, April 13:
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/cover/1
28177; 3) "KDDI to adopt Bluetooth in mobiles from June," April 16:
Reuters via Yahoo: http://biz.yahoo.com/rf/010416/t14929_2.html.

** High-tech sushi chain to go public on Nasdaq Japan

Extract: Kura Corp., a sushi store chain operator, has received
approval to list on the Nasdaq Japan market on May 29 ... The
company will offer 1,200 shares to the public in its initial public
offering. Of those, 800 are newly issued shares and 400 existing
shares currently held in private.

Commentary: We love it! We covered Kura in our March issue because
its high-tech sushi serving system caught our interest. See
http://www.japaninc.net/mag/comp/2001/03/mar01_filter_sushi.html.
We've since learned that at one outlet the Osaka-based chain has
developed an even cooler way to order sushi. At each table is a
touchscreen with floating animated fish. Just touch one of the
critters and an order will go through to the chefs. The screens also
offer fish lessons, so you learn while you eat.

Source: Dow Jones Newswires via Yahoo, April 16,
http://sg.biz.yahoo.com/010416/15/my6u.html

** NTT offers more low-rate, high-speed telecom services

Extract: NTT said on Monday it would launch optic-fibre services for
Japanese households at low rates while trimming rates for high-speed
ADSL connections ... NTT said it would begin providing 100 Mbps
optic-fibre connections to users in July in certain regions of
Japan. It will also offer 10 megabit-per-second services to
households at a rate of JPY5,900 ($47.50) per month, including
equipment fees.

Commentary: NTT is trying to kill off the unwelcome competition that
has sprung up in the wake of deregulation. The 100-Mbps offering is
a slash at Usen, the Osaka-based cable-radio player that is the only
company besides NTT with its own fiber-to-the-home network. Usen
will go public next week on Nasdaq Japan. Should be a big one --
much to NTT's chagrin. For more on the IPO, see
http://www.ipotokyo.com/preipo.phtml?seqid=741. The ADSL cuts are
aimed at Tokyo Metallic, eAccess, and other DSL upstarts.

Source: Reuters via Forbes, April 16,
http://www.forbes.com/newswire/2001/04/16/rtr234703.html

** DoubleClick set for JPY3.52 billion IPO at month's end

Extract: DoubleClick Japan Inc., a Japanese online advertising
distributor, said Monday it has set a pre-market price of Y150,000 a
share for its initial public offering of 23,456 shares ... The
company's shares begin trading on the Nasdaq Japan market on April
25 ... The price gives the IPO a total value of Y3.52 billion.

Source: Dow Jones via Yahoo, April 16

** Upcoming IPOs:
Kura Corporation, 2695, NASJ, 05/29; APP Sanko, 4843, OTC, 05/24; BB
Heiroku, 2694, OTC, 04/26; Usen, 4842, NASJ, 04/25; Dream
Technologies, 4840, NASJ, 04/25; DoubleClick Japan, 4841, NASJ,
04/25; Eurasia Travel, 9376, OTC, 04/25; WOWOW, 4839, MTH, 04/20;
Soken Chemical & Engineering, 4972, OTC, 04/20 (Source: Tokyo IPO
http://www.ipotokyo.com/)

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+++ Worth a read

** Japan braces for era of outsourcing (EBN)
http://www.ebnews.com/printableArticle?doc_id=OEG20010413S0046
Questions the ability of Japan's electronics giants to adapt
themselves to an EMS world (electronics manufacturing services).
Thanks to EMS companies like Flextronics in Singapore and Solectron
and Celestia in North America, startups like HandSpring can focus on
design and marketing and outsource the actual manufacturing.
Fujitsu, Matsushita, Toshiba, and NEC all want a piece of the $219
billion market, which is aimed largely against them (Japan's
electronics industry accounted for one-quarter of the world's
electronics production last year). But whether they have the
flexibility to adapt their ways remains to be seen. Good article.

+++ Random thoughts

** Rainy season: a great time for broadband VOD
Any service wishing to offer video-on-demand broadband service in
Japan should consider making its biggest promotional push during
rainy season, that month-long period starting sometime in June when
seemingly endless torrential downpours make life miserable for
anyone living here. Most people just want to stay inside and watch
videos, but going to the video store means sloshy shoes. What better
time to promote video on demand?

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STAFF
Written by Steve Mollman (steve@japaninc.net)
Assistance with news compilation:
Richard Ochero (richard@japaninc.com)

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