JIN-133 -- The "New Economy" in Japan (And Never Mind the Net)

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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. 133
Wednesday, May 23, 2001
Tokyo

CONTENTS

+++ Viewpoint: The "New Economy" in Japan (And Never Mind the Net)
+++ Noteworthy news
- Business Software Alliance wins one in Japan
- DSL derby: latest numbers impress, market size underwhelms
- Transmeta's strategy: Japan first, home (the US) second
- New stats on B2B e-commerce in Japan
+++ Worth a read

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+++ VIEWPOINT

The "New Economy" in Japan (And Never Mind the Net)

I spent last Saturday hanging around Ikebukuro station (on the
Yamonote line encircling Tokyo). Saw lots of interesting stuff.
Amlux, for example, is a five-story Toyota showroom displaying all
the latest and greatest from that ever more successful automaker
(net profits up 16 percent from last year). I especially enjoyed the
transparent escalators. And the nearby Sunshine Building (not long
ago Japan's tallest building) has some of the fastest -- and most
entertaining -- elevators in the world. But probably the most
curious thing I saw was behind the counter of a local cafe. It took
a while to register, but while my companion for the day snarfed down
an American-style cinnamon bun, it dawned on me that there were over
10 workers behind the counter -- over twice as many staffers as
customers. Waiting. Attentively. Just in case we needed another
napkin or curt bow.

This is nothing new, of course, but with all the talk of economic
restructuring, somehow that sight in particular stuck in my mind, as
did every other superfluous worker we passed on the way home: in the
subway, the old guys directing us up and down the steps, or simply
along the perfectly clear walkway; the three construction workers
directing us away from a coworker retouching paint on a pole; and
the elevator girls (two, of course) ensuring our safe entrance and
exit from elevators as we shortcut our way through a not-so-crowded
department store. Who are these people? What are their ambitions in
life? What do they hope to gain from these jobs? And most of all,
what do they get paid?

Don't get me wrong: I love being coddled in this country, and with
just one person behind the counter I'd be suffering US-style service
levels. I wouldn't have it any other way, and I don't think the
Japanese would, either. The over-employment also serves as a sort of
honorable welfare system in Japan, which, the wisdom goes, leads to
social harmony. (And which I, personally, don't feel is necessarily
a bad idea, though I know many of you disagree.)

The question is, How long will it last? Japan is in restructuring
mode, and the restructuring is targeted at inefficient domestic
businesses. Under-productive companies and sectors long protected
from international, internal, and Internet competition are either
faced with it now or about to be. The cafe we were in could soon
have a nearby Starbucks -- or even a Starbucks/Yahoo combo with free
Net access, as we report in the latest JI -- to contend with.

With the competitive revitalization of Japan's domestic service
industries, what's slowly emerging is a "new economy" -- new for
modern Japan, anyway -- that is in many ways more important than the
tech-driven New Economy. To quote the Fortune article that I
recommend below, "Japan is a consumer time bomb waiting to explode."
Another tidbit from that piece: Japan is sitting on $14 trillion
worth of personal financial assets, and those assets are piling up
by $600 billion a year, as much of an increase each year as the
entire stock of personal financial assets in South Korea.

Now you know why we're called J@pan Inc, not Korea Inc. (And why we
think we're in the right place at the right time!)

-- Steve Mollman

+++ NOTEWORTHY NEWS

** Business Software Alliance wins one in Japan

EXTRACT: The Tokyo District Court ruled on a case in which three
major US software houses -- Microsoft, Apple, and Adobe -- sought
compensation from a Japanese firm that allegedly engaged in
illegally copying and use of their software. The court admitted
almost all the claims made by the three US firms. The guilty party
will have to pay US$686,000 in compensation.

COMMENTARY: Illegal copying within companies isn't the only problem.
If you live in Japan, chances are you've received junk mail not only
for all sorts of adult services, but for inexpensive CDs loaded with
valuable software as well. These offers are amazingly audacious and
ubiquitous, and it was only a matter of time before the software
makers stood up for themselves. (And if you think it's bad in Japan,
take a trip to Southeast Asia or China ...) We're also seeing more
"copying is a crime" Business Software Alliance ads in subways and
other public place.

SOURCE: "Tokyo Court Orders Firm to Pay Compensation for Illegally
Copying Software," AsiaBizTech, May 22, http://www.nikkeibp.asiabiz
tech.com/wcs/leaf?CID=onair/asabt/moren/130878

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** DSL derby: latest numbers impress, market size underwhelms

EXTRACT: The number of DSL users is surging. At the end of February
there were about 34,000, by the end of March it was 68,000, and at
April's end there were more than 112,000 users. NTT East and West
together hold 44.2 percent of the market with about 49,000 (nearly
doubling their subscriber counts in April). Tokyo Metallic slowed a
bit, and eAccess surged, resulting in those two now being tied for
second, with around 30,000 and 26 percent each (eAccess has the
momentum).

COMMENTARY: Time for some perspective. The DSL market here is
growing rapidly, but it's still puny. South Korea has well over 4
million DSL households; Japan hasn't reached 150,000 (though if this
rate of growth keeps up ...). Most consumers wanting broadband in
this country are not even thinking DSL: topping the broadband wish
list among Japanese consumers are NTT's relatively pokey FLETs ISDN
and the scattered but speedy cable offerings. Less than 10 percent
are looking to jump to DSL. You'll see more exciting figures on the
growth rate of DSL, but keep things in perspective.

SOURCES: "Japan's DSL Operators' Shares Make Move; NTT Jumps,
EAccess Catches Metallic," May 21, Asia BizTech, http://www.nikkeibp
.asiabiztech.com/wcs/leaf?CID=onair/asabt/cover/130746; "Japanese
Broadband in Demand," May 21, CBS MarketWatch, http://cbs.market
watch.com/news/story.asp?column=Internet+Daily+Asia&siteid=mktw;
"Mission Impossible: Do Japan's Broadband Startups Stand a Chance
Against NTT?" J@pan Inc, page 48, June 2001.

** Transmeta's strategy: Japan first, home (the US) second

EXTRACT: Sharp will introduce a notebook with a Transmeta processor
in Japan next month, the companies announced Thursday last week. The
Sharp announcement rounds out Transmeta's support by major Japanese
notebook makers. Transmeta already has deals with NEC, Fujitsu,
Sony, Toshiba and Hitachi. Although no major US manufacturer has
backed Transmeta so far, the Japanese support leaves the upstart
"well positioned" for future notebook growth worldwide.

COMMENTARY: We think it's fascinating that Transmeta is taking this
approach. Everyone knows that cutting-edge hardware often starts off
in Japan and reaches US shores months or years later, but how
interesting that a US chipmaker upstart would intentionally tap in
to this pattern. Logic says that the strategy should work. We'll
wait and see -- if it does, this could be the beginning of a new
cross-Pacific trend.

SOURCE: ZDNet News, May 16,
http://www.zdnet.com/zdnn/stories/news/0,4586,5083052,00.html

** New stats on B2B e-commerce in Japan

EXTRACT: Japan's domestic market for B2B e-commerce totaled 7.4
trillion yen ($60.35 billion) in calendar 2000, according to IDC.
The B2B e-commerce market in Japan accounted for 26.4 percent of the
global market in 2000 and will reach 9.8 trillion yen in 2001, 15
trillion yen in 2002, 22.3 trillion yen in 2003, and 35.2 trillion
yen in 2004.

COMMENTARY: If these are reliable figures, it's remarkable that
Japan last year **already** accounted for over a quarter of global
B2B e-commerce. In our November 2000 issue, we noted projections
from eMarketer valuing the market at $45 billion by 2003. It's
surpassed that already. No wonder B2B play Internet Capital Group
was so excited about Japan as it set up shop here last year.

SOURCE: "Japan's B2B market found to be worth $60 billion last
year," http://sg.news.yahoo.com/010522/3/psjt.html; "The B2B
Universe," November 2000, J@pan Inc,
http://www.japaninc.net/mag/comp/2000/11/nov00_investor_b2b.html

+++ EVENTS (ADVERTISEMENT)

** UC Berkeley Symposium -- "The 21st Century Economy"
May 31 - June 2, The Westin Tokyo

Come join Keiji Tachikawa (President, NTT DoCoMo), Laura D'Andrea
Tyson (Dean, Haas School of Business), and other academic and
business leaders discuss and debate topics of technology and venture
capital in the 21st Century. Speakers include faculty members from
UC Berkeley's business and engineering schools, as well as leading
Japanese corporations including NTT DoCoMo, NEC, Rakuten, eAccess,
Mobile Internet Capital, and others. There's never been an event
like this in Tokyo. Don't miss this unique opportunity!

For more detail and registration:
For additional information: info@ucb-symposium.com
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** Mobile Telecoms Japan
Presented by Strategic Research Institute
July 11-13 Sheraton-Fisherman's Wharf, San Francisco, CA

At this event, you'll hear first-hand from Japan's three major
wireless carriers: NTT DoCoMo, KDDI, and J-Phone. This is the first
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will provide in-depth information about i-Mode, as well as its
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For more information, contact Ron Berg at rberg@srinstitute.com
rberg@srinstitute.com> or visit the conference Web site at
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registering.

** "Interactive Contact Centres・
to be held in Tokyo on 2-3 July 2001

marcus evans, the world's leading provider of business events, is
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For further details, please visit:
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10% discounted rate applicable for J@pan Inc newsletter readers.
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** 3G World Congress 2001 -- 6th Annual CDMA Mobile Conference
June 11-15, 2001, Hong Kong Convention and Exhibition Centre

Organized by the Institute for International Research (IIR), in
association with CDMA Development Group (CDG). Attend the largest
international conference/exhibition in Asia covering every aspect of
CDMA and meet 1,200+ senior executives from telecom! With keynote
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To register, contact IIR: Tel +852 2219-0111, Fax +852 2219-0112,
Email customersvc@iir.com.hk, or visit http://www.3Gcongress.com

+++ WORTH A READ

Fortune magazine just ran an excellent (and long) perspective piece
on Japan's current restructuring.

Excerpt: "What would the place be like if--across the board--old,
decaying businesses were allowed to die and new, energetic ones to
be born? The answer: a revived economic powerhouse, with rates of
productivity growth twice as high as America's, capable of making
the mighty Japan of the 1980s look like a midget. This would not
turn Japan into a juggernaut to fear and loathe, however: Such a
revival would be based not on furious export growth but on increased
domestic consumption and openness to investment and competition."

See "Rebuilding Japan Inc.," Fortune,
http://www.fortune.com/indexw.jhtml?channel=artcol.
jhtml&doc_id=202535

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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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