Joint Interview: The Presidents of Compaq KK and Novell Japan, Ltd.

interviewed by Terrie Lloyd

Masuru Murai, president of Company KK, is a graduate of Kansei Gakuin University, the University of California, Los Angeles (MBA), and the Executive Management School of Columbia University. Before joining Compaq KK in July 1992, he was manager of the information and communications business department of IBM Japan, Ltd.

Kazuya Watanabe, president of Novell Japan, Ltd., is a graduate of Yamanashi University. Before joining Novell in July 1990, he was senior managing director of NEC Home Electronics, Ltd., and an executive director of NEC Corporation. Watanabe-san is a well known figure in the Japanese computer industry, and is commonly credited with being the founding father of NEC's PC business. He served as JEIDA's chairman for over 10 years.

Computing Japan: Murai-san, could you please give an overview of Compaq KK

Murai: Right now, we have about 150 employees. By the end of this year, we expect to have a staff of about 230. We provide essentially the same range of products within Japan that Compaq sells elsewhere. Our lineup includes portables (notebooks), deskt ops, and servers. About the only product family we don't sell here, which is available elsewhere, is the Concerto, because we feel that this portable PC has a limited market here.

CJ: Over the past 2 years, Compaq has spent a lot of time building infrastructure and customer support. What sort of breakdown can you give on the job composition of your company?

Murai: Of our 150 people, about 20 are dedicated to Japanese product development; another 20 to 30 people provide customer telephone support services. Marketing and Sales consists of around 50 people. Then, in addition, I am responsible for Japan-based procurement, and this group numbers around 10 people.

CJ: I notice that you did not mention a large service organization.

Murai: An important issue in starting a business here is service support. A conventional computer sales company would build their own service team. We, however, have used a different strategy by introducing contract-based service with third-party maint enance companies, and by teaching distributors about our products.

CJ: Has this strategy proven successful?

Murai: Yes. This use of third-party maintenance providers gives us a big advantage. Typically, for nationwide coverage, a company needs about 2,300 service engineers. If you look at IBM Japan, Fujitsu, DEC, and others -- they all have around 2,000 to 2 ,300 people in a service role. Where their problem lies, though, is that only about half of this very large work force is kept busy at any time. This is because these people are resident in smaller locations, and with the high quality of products these da ys, they do not have enough to do -- consequently, they are labeled "necessary overhead." These costs become a burden for the customer, though, which is something we wanted to avoid.

We have also found that, with the multivendor environment these days, most customers have more than one brand of equipment. Therefore, we opted to use multivendor-capable third-party service organizations to do our service for us. However, we monitor t he quality of our services by having all service calls first come in through our Compaq Center telephone support team. Anyone in Japan can call the Compaq Center through an "0120" number [Japan's equivalent of the US's toll-free 800 numbers-Ed.]. We deliberately made the phone number easy to remember. As you may know, Japanese numbers can be pronounced in a variety of ways, and those readings can be recombined into words. The phrase for remembering ours is, "Totte-mo ii-ne Com-pa-q" (0120-101589). It's easy to remember, and you don't need a phone book to call Compaq.

CJ: Watanabe-san, how many people are working at Novell

Watanabe: We have about 180 employees at Novell.

CJ: Can you give us a breakdown on staff in Service & Support?

Watanabe: There are about 25 to 30 people for Service and Support. There are also about 30 to 40 people involved in the Japanization of new products. These people are working very closely with our headquarters in Provo, Utah.

CJ: I understand that there are a lot of Japanese engineers in Provo working on localization for Japan?

Watanabe: No, only a few; around 10 or so.

CJ: Murai-san, can you tell me something about your recruiting techniques and problems?

Murai: Things on the employment front are changing very rapidly. I think that young people these days are much more familiar with Western culture; they look for a company that is growing quickly and has some future. This is combined with the economic s ituation, which has reduced the job availability. Actually my problem is more one of refusing people work than finding suitable people.

CJ: Do you have any preference in universities for your new staff?

Murai: Over the past two years, we have not been hiring new graduates, only experienced people. Many universities have been pressing us hard to take their graduates; unfortunately, because the company is so young, we are unable to train these people ye t.

CJ: In finding experienced people, what is your favorite media for advertising?

Murai: Tech B-ing magazine is popular; the people in the computer industry do read that. Also, the publicity surrounding Compaq has created interest. I often get personal letters asking for jobs.

Watanabe: We at Novell have the same situation as Murai-san: we don't have any problems finding people. We started hiring new graduates from this year, and next spring we will hire about 10 people straight out of university. Overall, we will be employi ng about 50 more staff over the next year. Basically, we take one new staff member every week. Usually, we are hiring engineers and administration personnel. We also use Tech B-ing as a favored media.

CJ: Watanabe-san, while Compaq KK is wholly owned by Compaq USA, I understand that Novell Japan is partially owned by some other shareholders.

Watanabe: Yes. There are six Japanese investors, apart from the major shareholder Novell Inc. of the States [which owns 54% of Novell Japan--Ed.]. These investors are: Softbank, with 26%, and Canon, Fujitsu, NEC, Sony, and Toshiba, each with 4% of the shares.

CJ: I've seen rumors in the press that some of these shareholders want to withdraw from the joint venture. Is that true?

Watanabe: No, that information is wrong.

CJ: There have also been rumors in the press that Novell Japan's sales performance has not been good recently.

Watanabe: Novell Japan was established in 1990, and the first Japanese product was shipped in 1991. In that same year, our revenue was about 1.2 billion. In 1992, revenue was about 3.2 billion, and in 1993 it was 6.2 billion. Our target for 1994 is aro und 9.0 billion, and we are currently on target for this amount.

CJ: What do you predict for 1995

Watanabe: The Japanese networking market is growing rapidly. Some reports say that there will be a growth rate of 40% to 50% over the next 2 years. Therefore, we expect to do at least 50% better than in 1994, meaning about 145 billion. Our fiscal year actually starts in November, so this figure would be for the period November 1994 through October 1995.

CJ: What is your market share in Japan at the moment

Watanabe: A recent JEIDA [Japan Electronic Industry Development Association] report said that Novell had 62% of the Japanese networking market in 1993.

CJ: Murai-san, what are Compaq's market share expectations for the next couple of years?

Murai: Compaq started sales in the Japanese market from spring 1992. Our full-year revenues for the last year were 11.3 billion. So far this year, as of the end of May, we have already surpassed that figure. We expect to at least double and perhaps tri ple our sales figure for last year.

We are not making any projections for the entire year because, frankly speaking, at Compaq we change our plans just about every month. There are no rigid numbers. By the way, our fiscal year is January through December.

CJ: What do you foresee for 1995?

Murai: In this industry, it is very hard to make any predictions. Hopefully, we will continue to grow at this rate; that is our objective. Actually, our CEO, Eckhard Pfeiffer, said that he would like to be Number One worldwide in the PC industry by 199 6. Similarly, I also have a long-range plan: by 1998, I would like to have 10% of the Japanese market. If we continue to grow at the same rate, by the end of this year we will hold about 5% of the Japanese market.

CJ: You recently introduced the Presario family to Japan.

Murai: Yes. However, since the consumer market in Japan is not nearly so well developed as it is in the States, we have so far released only one Presario model here. The CD-ROM version of the machine is still to be announced.

CJ: The Presario is obviously targeted at the SOHO (Small Office/Home Office) market, but many people say that the maior opportunities are in the downsizing market as Japanese corporations come off their mainframes.

Murai: Well, looking at a worldwide trend, SOHO definitely represents a strong market in terms of growth rate. In Japan, there are equal opportunities in both the SOHO and corporate markets. The main reason is that the Japanese computer market is still pre-mature. In the USA, last year about 14 million computers were sold, and this year sales of about 17 million are predicted. In Japan, although the economy and population is about half, and theoretically there should be about 8 million units shipped th is year, in reality there were only 2.5 million units sold last year. Therefore, since Japan is in a catchup mode, we see very rapid growth in the corporate sector.

CJ: How about the argument that Japanese are still buying word processors rather than computers?

Murai: Well, that is a standard arguement -- that Japanese buy word processors. But the fact is that only about 2 million word processors were sold. Now, if you think that word processors are like electronic typewriters, and you add the sales of electr onic typewriters sold in the States to the overall total of OA units sold there, you would still get a much higher figure for the States than you would for Japan.

CJ: How big do you think the corporate market will be, especially given the strong trends towards downsizing?

Watanabe: I can only relate to the downsizing efforts that are represented by the PC networking market growth. The JEIDA report I mentioned earlier put the percentage of PCs connected to a network in 1993 as 17%. Next year it is predicted to be 24%. Th ese increases are essentially being captured from the mainframe market.

Murai: As far as Compaq is concerned, we see really big opportunities. Not just in the corporate area, but also in the home market where, according to statistics I saw recently, there is only a 100/o penetration. This market lags the US significantly, and this is really the first year that it is being opened and paid attention to

CJ: What do you think will happen to NEC's market share over the next 3 years Also, how about Apple's future prospects?

Murai: I don't know the extent of the drop for NEC, whether it's 2% or 3%, but with the current trend of people choosing international standard architectures, those companies still making local architecture machines are inevitably going to see erosion of their market share.

As far as Apple is concerned, their international growth has slowed, and Windows has gained ground. The public wants a better selection than just a single manufacturer.

CJ: A question for both of you: Many foreign IT (information technology) staff complain that they are neglected by US companies eager to service the much bigger Japanese market. What is your support for the foreign market?

Murai: It is very difficult for any company to satisfy the multinational accounts on a global basis. However, I think that we do better than most companies. For example, we offer worldwide warranties on our portables, because we assume that people owni ng them move around. We also offer global sales and maintenance agreements for large corporations. And, apart from our bilingual vendors, we also have English-speaking contacts within Compaq KK: Mr. Yachi Altinbay and Mr. John Goodsill, who are available to deal with problems and requests customers may have.

Watanabe: Really, the only companies using the English version of NetWare in Japan are the very large multinationals. These companies tend to be partners in our Master License Agreement (MLA) program. Novell Inc. has worldwide support for MLAs in Engli sh in both the USA and Australia for the Pacific Rim. You should be aware, though, that these centers do not support the Japanese version. Therefore, we expect users of the Japanese version to seek support locally in Japan. Users of the Japanese version o f NetWare who are located overseas will have to call Novell Japan directly for support. However, we have plans to open a Japanese-capable support center in the USA in the near future.

CJ: Murai-san, does Compaq have support capability for the Japanese machines overseas?

Murai: People in the United States can buy Japanese products locally from Compaq Computer Corporation. Also, they can call our support center, where we have Japanese speakers available. This support is not formalized yet because the user base is limite d, but we will formalize it as things grow. Our interaction with overseas is definitely growing, though, since we have started manufacturing the Japanese product down in Singapore. Therefore, probably Singapore will become the distribution hub for Japanes e equipment users in Asia.

CJ: Can you both tell me something of the difficulties and pleasures of being the president of a foreign-controlled company?

Watanabe: We have a very good relationship with Novell Inc., unlike the relationship that some US companies operating here have with their overseas headquarters

I think an important reason is because Novell Japan is not 100% owned by the US side. Another reason is because of the corporate culture in Novell Inc.

Murai: At Compaq, we have been lucky not to have any boardroom politics that interfere with our operation here. I think that companies who do have this problem cannot succeed in business in Japan.

CJ: What about Apple?

Murai: Apple changed their president every year until Takeuchi joined from Toshiba. He was the first person to last more than a year, going four and a half years before leaving. That is a good indication of the US company wanting to over-control the su bsidiary in Japan. My advice for American companies is to leave the local management team to do their job. Which is what Compaq USA lets us do. They believe in long-term strategic investment.

Another good point in my favor is that Eckhard Pfeiffer has been my boss since Day One. He was General Manager of Europe, and knew already of the problems in dealing with headquarters. So he knew how important it is to leave things to the local manag ers and made this a strong point in his first meeting with me. CJ: In closing, can you tell me how you were recruited for the role of president of a foreign startup in Japan?

Murai: I was called by a head hunter, although I wasn't initially the obiect of his approach since I had always rejected meetings with such people. However, this particular time, the person calling me had talked to an acquaintance in Armonk [IBM's US h eadquarters--Ed.l, and he was told that I would be a good person for one of their clients to talk with about how to do business in Japan. When we met for lunch, I found that he had two companies interested in talking to me, and after talking for an hour o r so, he suggested that I should talk to Compaq. He then set up a meeting with the board members, and things went from there. I was attracted by Compaq's company culture -- that of a fast-growing company, and one that was very much like IBM back in 1962 w hen I joined them.

Watanabe: Back in 1989, when Novell Inc. was looking for a partner in Japan, they decided to work with Softbank as a partner. The president of Softbank, Son-san, was looking for a suitable president for the new Novell subsidiary and approached me with the offer. This was not through a head hunter and was done with the acquiescence of NEC.

There was some personal risk involved. However, I made my decision to head up Novell after thinking about the direction of the market. It seemed to me that many customers wanted a common software platform to tie all their equipment together, and Novell 's products were a natural answer. Some of my NEC colleagues didn't understand why I made the move, but that was because they couldn't see the trends happening, which would bring open systems to the market in a short period of time.