JIN-144 -- Japan: Still a Land of Opportunity

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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. 144
Thursday, August 16, 2001
Tokyo

CONTENTS

+++ Viewpoint: Japan: Still a Land of Opportunity
+++ Noteworthy news
- Rakuten Wilts
- VCs Struggle
- ATMs, ATMs Everywhere
- Konbinis to Sell Gamecube Online

+++ VIEWPOINT

Japan: Still a Land of Opportunity

There's been a lot of gloomy news lately. The Nikkei average hit a
16-year low on August 14, large electronics manufacturers are issuing
profit and revenue warnings, and last week's government figures
showed that GDP for the January-March quarter grew an eensy-weensy
0.1 percent in real terms from the previous quarter.

Over the same period, personal spending rose an anemic 0.6 percent,
which may not seem so bad until you remember that households account
for 15-20 percent of overall spending, which in turn is the single
biggest component in calculating figures like GDP. In other words,
with continued flat consumer spending, there can be no recovery.

In this sticky hot summer and with such grim economic performance,
the first reaction to any additional external threat to the economy
is to circle the wagons and keep Us separate from Them. In April,
Japan slapped emergency import tariffs on stone leeks, shiitake
mushrooms, and tatami straw (most of which come from China) to shield
domestic farmers. In June China retaliated by instituting 100 percent
tariffs on autos, mobile phones (Ouch!), and air conditioners.

Kansai-based Kyocera, one of Japan's major cell phone makers,
subsequently announced it would stop shipping PHS components to China
due to the retaliatory tariff. Kyocera shipped PHS components worth
some JPY10 billion to China during fiscal 2000. We guess this year's
figure will be substantially lower.

In addition to inciting foreign retaliation, domestic go-it-alone
policies -- although satisfying emotionally -- create other
distortions.

On Tuesday this week, an advisory panel recommended that the
government take steps to reduce the amount of rice it stockpiles,
currently 1.5 million tons (!!), as a contingency against bad
domestic harvests. It costs about JPY20,000 to store each ton, and it
appears that no one can figure out why this massive amount of rice is
required.

This surfeit of domestically produced rice may be one cause of the
loud protests over East Japan Railway's continuing success in selling
US-made bento box lunches at station kiosks (the bento boxes come in
fish, chicken, and beef versions). Importing rice from the US (or
anywhere else) would, due to long-standing tariffs, be prohibitively
expensive, but the California-based, Japanese-owned contractor gets
away with it because the tariffs on frozen, prepared lunches are much
lower than on plain rice.

As a result, the US-sourced bento meals are about half the price of
domestic ones (even with the tariffs and cost of shipping), and
hungry, long-fleeced travelers are snapping them up at the rate of
some 2,000 per day. Meanwhile, the government's massive stockpile
continues to grow.

While the economy may be stagnant, we think the bento story, at
least, proves the point that there are still opportunities here to
sell good quality products at fair prices, and that applies to
sectors other than frozen meals -- like high tech, IT, and wireless.

Case in point: Tokyo-based tech startup I-Chara KK (see link to J@pan
Inc story below) was bought last month by an Ireland-based mobile
developer. The sum involved was not disclosed, but the founder and
original crew did modestly well. Good for them. And despite the
weakness in the technology sector, there are lots of other tech
startups that we're rooting for (Arriya, JCI, Cognitive Research
Labs, Eleven Point Two, Technoweb, and others).

In the meantime, we urge everyone to get out there and boost consumer
spending, which really is one of the few ways that the economy will
pull itself out of the mud. Just be sure not to buy an American
bento.

--Daniel Scuka

J@pan Inc profile on I-Chara KK (see also upcoming Sep. 2001 issue):
http://www.japaninc.com/mag/comp/2000/11/nov00_investor_social.html

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+++ NOTEWORTHY NEWS
(Long URLs may break across two lines.)

** Rakuten Wilts

Extract: Shares in Web-based shopping mall operator Rakuten tumbled
as much as 10.83 percent on August 13 after a newspaper said its
current profit grew by only 2 percent in April to June. The Nikkei
said the figure would rise quarter-on-quarter to only JPY500 million
because of increased operating expenses and marketing fees needed to
attract more corporate tenants to the firm's online mall. Rakuten's
current profit, which is pre-tax and excludes extraordinary items,
rose 25 percent in the January to March quarter. A Rakuten
spokeswoman declined to confirm the report, saying the figures were
the Nihon Keizai's and not based on the company's analysis (Rakuten
will announce its results for the April to June quarter on August
21).

Commentary: The Nikkei also said that Rakuten had only increased
tenants by about 100 (from 5,200 to 5,300) during the March to June
period. Ironically, the paper predicts sales for the quarter will
grow a respectable 10 percent (to JPY1.25 billion yen) and rent
revenues should rise slightly to JPY800 million. One of the long-held
reasons why Japanese haven't adopted online shopping in a big way has
been the expense of per-minute dialup access fees. While it appears
that online retailing is getting tougher in Japan, this may change
with the explosive growth in (flat-rate, all-you-can-eat) ADSL and
other broadband subscriptions. Further, despite the dot-com doom and
gloom, the Nikkei predicts that Rakuten will post an **increase** in
advertising revenues in its August 21 report. Don't count Rakuten, or
online mall shopping, out just yet.

Source: "Rakuten shares tumble on report of slowing profits," Reuters
http://biz.yahoo.com/rf/010812/t104160_2.html

** VCs Struggle

Extract: During the heady days of the information technology boom of
the late 1990s through early 2000, many foreign VC firms were lured
to Japan in search of Internet-related business startups. The
seemingly bright prospects of IT companies, however, were not the
only attraction. VCs were attracted by the expanding opportunities
brought about by Japan's attempts at corporate restructuring and the
improvement in domestic capital markets. Some venture capitalists
even referred to Japan as "the world's last frontier." But since the
collapse of the IT market, some foreign venture capitalists have been
struggling to find prospective ventures to invest in. They also face
the hard reality that Japan is still a difficult place for
entrepreneurs, partly because large companies are often competitors
to venture firms in the same field.

Commentary: This story concludes with a quote from a partner at VC
firm Apax Globis Partners, who says: "In Japan, what we see is not
competition among ventures. Instead, big companies do the same thing
as ventures do, backed by their financial base. To avoid competition
with large companies, ventures have to find out what large companies
don't do."

We saw an interesting twist on this non-competitive, collective take
on venture fostering two weeks ago when Tokyo-based Access (maker of
the i-mode browser for NTT DoCoMo) issued a Japanese-only, stealth
press release. The announcement said that Access had received a
JPY932,000,000 capital infusion (half allocated to the company's
capital base, half to capital reserves) from Matsushita, NEC,
Fujitsu, and Mitsubishi -- all major cellphone manufacturers.

Why the move? The company didn't comment (other than what the press
release said, that the move would help the company develop products
for overseas markets), but we can speculate that, as the sole source
of the i-mode browser, Access' continued success is vital to i-mode's
success. That the investment came quietly from the handset makers is
no surprise. They are the ones who stand to get stung the most if
there are any more glitches with the onboard software environment, so
even tighter cooperation with Access -- cemented by some $7.5 million
in cash -- is in their very best interest. Access has successfully
found out "what the large companies don't do," and now, we guess,
they can't afford not to keep it fully pumped up with cash.

Access Japanese-only press release:
http://www.access.co.jp/ir/ir_16.pdf

Source: "Waiting to Pounce: VCs Bank on Restructuring Mood," Japan
Times
http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nb20010816b1.htm

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** ATMs, ATMs Everywhere

Extract: Automated teller machines are reaching deeper into your
neighborhood, offering a range of services, including some that are
unprecedented in Japan. Convenience store ATMs -- some operated by
banks and others by a consortium of convenience store chains --
basically allow clients to deposit, withdraw, and send money to and
from their bank accounts 24 hours a day throughout the year. In
addition, newly emerging Internet banks are promoting ATMs as a key
link with their customers. "We estimate that each ATM will increase
our sales by an average JPY10,000 per store per day," Lawson
president Kenji Fujiwara told a news conference in April.

Commentary: Just a few years ago, ATMs were a novelty here. Banks
that did install them (invariably only in branch lobbies -- forget
gas stations, stores, or other places that people frequent) allowed
them to remain open for only a couple of hours longer than the
branches themselves, completely missing the concept of full-time
convenience that the machines provide.

Citibank helped to turn this around by being the first to make its
machines available 24 hours per day, and on holidays and weekends.
Sometimes, gaiatsu (foreign pressure) is not altogether a bad thing.
Now, the convenience chains are rushing to install Net-enabled
devices in every franchise, and many new models are fully e-commerce
enabled (they also spew highly annoying TV-style commercials via
their gorgeous full-color displays 24-7).

J@pan Inc story on vending machines (including the
combo-ATM-and-shopping-kiosk Omron Cybergate VQ4511):
http://www.japaninc.com/mag/comp/2001/01/jan01_veni.html

Source: "Greater Variety of Services: ATM Boom Reflects Banks'
Struggle for Survival," Japan Times
http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nb20010815a1.htm

** Konbinis to Sell Gamecube Online

Extract: Fans who want to purchase Nintendo痴 new Gamecube console on
its Japanese launch date, expected to be September 14, won't have to
line up in front of an electronics store at midnight; they can rush
to their local convenience store instead. Convenience store chain
Lawson will start collecting advance orders for the Gamecube and its
software at 10 a.m. on August 15 via in-store Loppi terminals
installed in each of its 7,516 Japanese stores.

Commentary: The standard newspaper photo on any day that a new game
or game console is to be released is of the long lines of otaku
(enthusiasts) lined up in front of their favorite Akihabara reseller
the night before, waiting for a chance to snap up one of the first
issues. We guess that will still happen (part of otaku culture is,
after all, networking on sidewalks in the pre-dawn darkness), but the
lines will just be shorter.

Nintendo announced that a total of 500,000 game consoles will be
shipped on the first day in Japan and 900,000 more before year-end.
If Lawson earns a 2 percent commission on each Gamecube sold
(JPY25,000 per unit via Loppi), and 10 percent of the first day
shipment is sold via konbini, that's a tidy JPY25,000,000 in revenue.
Maybe the Loppis aren't that loopy after all.

Source: "Japanese Convenience Store Chain to Sell Gamecube Online,"
IDG News
http://www.gamepro.com/index.html?/nintendo/gamecube/games/news/16066.shtml

+++ EVENTS (ADVERTISEMENT)

** MCF Mobile Developers Conference 2001 (mobidec 2001) to be held in
Tokyo
mobidec 2001 provides you with everything you need to know about the
latest in mobile application and content technology. The three
Japanese carriers -- NTT DoCoMo, KDDI and J-Phone -- will be coming
together for the first time ever at this conference, and are sure to
showcase their new Java-based mobile applications. These and other
major industry leaders will bring you up-to-date information on
innovative technologies. The conference will be held August 29-30 at
the Hotel Nikko in Odaiba, Tokyo, and will feature 14 technical
sessions (fee required), 9 open sessions (free admission), plus an
exhibition.

For further information please visit
http://www.shoeisha.com/event/mobidec/

** Next Generation Mobile Content Strategies
11-13 September 2001- London, UK
Next Generation Mobile Content Strategies goes straight to the heart
of mobile content development. By examining case studies from
industry leaders, delegates will gain invaluable insight into the
mobile market today.
http://www.metelecoms.com/mobilecontent6.htm

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CORRECTION: Pocit Labs has developed a Bluetooth development
platform/communications product -- not a Bluetooth protocol stack
as mistakenly reported in JIN No. 143. The editors regret any
confusion.

STAFF
Written by Daniel Scuka (daniel@japaninc.net)
Assistance with news compilation:
Richard Ochero (richard@japaninc.com)

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