interviewed by Wm. Auckerman
After graduating from the electronic information technology department
of Kogakuin University in 1974, Fumitaka Tezuka went to work for Burroughs
(now Unisys). In 1983, he joined Digital Equipment Corporation (Japan),
where he worked as manager of PC sales. In 1988, he left Digital to become
Tokyo branch manager of Japan Alliant, then in 1991 joined Japan BBN Communications.
In 1992, Tezuka was selected by Wellfleet to establish Wellfleet Japan,
and with the merger of Wellfleet and SynOptics to form Bay Networks, he
became president of Bay Networks Japan in February 1995.
This is Tezuka-san's very first English-language interview.
Why did you decide to join Wellfleet?
Tezuka: Basically, because I was very interested in the internetworking
market. At that time, Wellfleet, Cisco, and SynOptics were three of the
best known internetworking equipment makers. I interviewed with Wellfleet
and SynOptics. Wellfleet seemed to me to be the more technologically oriented
company, so I decided to join Wellfleet. I had very good timing, I believe.
I understand that your management philosophy is to keep the company
small, and outsource many of the tasks. Why?
Tezuka: The main reason for this is my own experience. Many big, well known
companies spend a lot of money and time hiring staff, but do not use them
effectively. For example, Alliant hired about 100 people within two years,
but after that, it began shrinking. Alliant Japan underwent a big restructuring,
getting rid of people it had spent resources finding and training. This
kind of situation, I think, is not good for a company or the employees.
So I would like to keep Bay Networks KK small, less than 40 people.
Another consideration is that I like the possibilities offered by using
outsourcing -- that is a big point.
How big is Bay Networks Japan now?
Tezuka: We have a staff of about 30.
And what are your revenues?
Tezuka: I can't discuss our revenue numbers, but I can say that last fiscal
year (our fiscal year runs from July through June), we did about $70 million
on a street-price basis. We're forecasting that will double for the current
fiscal year.
What are your major products in Japan?
Tezuka: The best technology in Japan is 100-megabyte Fast Ethernet. We promote
this product highly, and we have a big backlog of orders. That's our key
potential product source.
Also, we have many, many other products, from low-end to high-end. A typical
low-end product is a network interface card (NIC) for use in a PC; that
has a price of around ¥20,000. From there, our product line-up goes
through to the ATM (asynchronous mode transfer) devices at the high end.
How would you characterize the Japanese networking market overall?
Is it more of a high-end market, or a low-end market?
Tezuka: That's a good question. I think it is both.
At this moment, Japanese corporate customers are becoming very aggressive,
and spending a great deal on networking. Investment in networking from firms
in the banking and financial markets is very high now. Those kind of customers
are spending for huge networks, networks covering the whole area of Japan.
For example, we recently signed a big deal from "A" bank; they
installed our products in around 1,000 sites. So investment is very high
in the enterprise market -- the middle-to high-end markets.
But the low-end market is also huge right now. In Japan, especially, the
ISDN (integrated services digital network) market is very well developed,
compared to that in the US and Europe. This market is also very important
to us. Small business customers, and even home users, are buying small routers
and simple hubs for use with their ISDN service. This is a huge market.
So, from the product point of view, we focus on both the small side as well
as the high-end side.
When you say that the low-end market is huge, do you mean in
terms of potential, or in terms of actual current sales?
Tezuka: Both. The potential is great, and the actual current use is also
huge.
How does Bay Networks' product line-up in Japan compare with
its product line-up in the US and Europe?
Tezuka: They are very similar. The difference is mainly in the ISDN area
-- that is much more developed in Japan.
Who are your major competitors in the Japanese networking market?
Tezuka: Mainly the mainframers; by that, I mean Fujitsu, Hitachi, NEC --
those are the big three. And also foreign companies, like Cisco. Those four
companies are our major competitors, I think.
And how do you differentiate yourself from your competitors?
Why should potential customers buy a Bay Networks' product?
Tezuka: Good question. [pauses to consider]
Generally, we have a wider range of products with many different specifications,
compared to the products marketed by our competitors. So we offer the customer
a better choice, products suited to their specific needs.
But basically, there are two different markets. One is the routers portion.
We produce products for the market that offer redundancy of functions. Redundancy
is the key thing for the internetworking market. We have been very successful
in getting orders from companies in the financial market and utilities market;
those kind of customers need a reliable system that will never go down.
Our competitors don't offer the same kind of redundancy at this moment.
That's a big key for our success in the router portion of the market.
Other side is, as I explained, the hub market, the 100-megabyte Fast Ethernet
market. In this market, on the other hand, the Japanese mainframers haven't
developed those kinds of systems yet. Bay Networks is the opinion leader
now, and the market is growing very well.
So we promote those two kinds of products. ([aside] Muzukashii. I
could explain this much better in Japanese.)
How would you characterize the Japanese networking market? Do
you market your products differently in Japan than in the US, for example?
Tezuka: Yes, in part, because Bay Networks is well established in the US
internetworking market. Potential customers there understand our technology
and our product specifications. They are highly intelligent, demanding customers.
The Japanese market is less well developed, and we are less well known,
so we have to explain the technology and the advantages of our products
through advertisements and a sales force of resellers.
Is Japan a major market for Bay Networks? What is Bay Networks
KK's proportion of Bay Networks' worldwide sales?
Tezuka: Bay Networks KK's revenue is about 3% of Bay Networks worldwide
sales. In total, we have about a 20% market share. It differs on the router
side and the hub/switching side. For the switching market, it is over 20%
(the top share). On the router side, it is nearer to 15%. Combined, we have
close to a 20% overall market share.
What kind of changes have you observed over past decade in Japan's
networking market?
Tezuka: Big differences. Ten years ago, the Japanese market just didn't
understand local area networking (LANs). Host-to-dumb-terminal networking
was the classic networking environment in Japan. There was simply no LAN
environment in Japan a decade ago, or even five years ago.
It is only in the past year that Japanese companies have started establishing
local area networks by using shared media: that means Ethernet, token ring,
and FDDI. And now, almost everyone is turning to switching technology. Switching
technology came from hub technology and those types of ATM technology. This
is the big difference, and it is a sudden turn-around.
How does Japan's networking market compare to that of the US?
Is it lagging behind?
Tezuka: Yes, but I believe it is catching up quickly. Market scale is still
about five times larger in the US, but the Japanese market has been very
active, and is maturing relatively fast. It should be catching up soon.
I know that the large firms and even government ministries are
at last actively networking, but what about Japan's small and medium-size
companies? Are they finally realizing the value of networking?
Tezuka: Yes, finally. They are just starting to come on board, so there
is much potential for growth.
What are the major concerns of the small and medium-size companies?
What are they looking for, and what do they expect to gain?
Tezuka: Small and medium-sized Japanese companies have traditionally used
what we call "office computers" (ofucon). They don't have
mainframe experience. Japanese office computers were only of the stand-alone
type, they didn't use networking. There were no local area networks, or
wide area network systems.
Small companies are spending on a LAN environment at this moment because
they realize that PC communications are very useful. The advantages have
been very well publicized recently. In the small and medium-sized companies,
top management is looking at establishing just one environment inside their
company. Also, they want to be able to communicate with branch offices and
group companies by using routers and switching technologies.
What do you foresee for the future of networking in Japan?
Tezuka: The Japanese government is spending on high-technology networking
for universities and government ministries. This will have a big influence
on the technology market; the government will promote it. But the Japanese
market is very reluctant to adopt ATM switching. ATM technology is being
used mainly in universities and government laboratories, but not in the
commercial market, in business fields like finance or transportation. Companies
haven't decided to use ATM switching yet.
But in the future, on the vendor side, we are always promoting the use of
ATM technology; it is a good and practical technology. But ATM and switching
are just moving into the Japanese market. Within two or three years, most
companies will have adopted ATM technology into their backbone networks,
their core networks. But that's two or three years in the future.
What are the most important technologies right now?
Tezuka: ATM is not yet mature enough. Currently, the only suitable technology
is Fast Ethernet, I believe. So, ATM switching is still alive at this moment,
but interface cards and interface technology aren't selling now. Customers
want to build in ATM directly by using PCs, but the PC side hasn't installed
the interface cards. That's a big problem in our market.
It will develop step-by-step. At the moment, PC customers will want to adopt
high-speed, 100MB switching. The next step will be ATM.
Reengineering and downsizing are "in" concepts now.
How is this affecting the market?
Tezuka: Right now is very good timing for us, because of reengineering and
renetworking and the drive to reduce long-term expenditures. Those factors
should increase the popularity of internetworking. For our company, and
our competitors, this movement is very fantastic timing.
What are the biggest problems you face now?
Tezuka: Basically, I have no problems. New business is coming in every day.
Our revenues are doubling every year. My main concern is just head count
-- limiting the size of the organization.
Do you follow the same business strategy in Japan that Bay Networks
used in the US and Europe?
Tezuka: I'd say it's 50% similar, but the rest is quite different. That
is because we have the mainframers as big competitors in Japan. In the US,
there are only US competitors. The Japan market is a huge competitive field.
That's the big difference.
Another factor is support. As you know, the Japanese customer wants convenient
support. That means 24-hour technical support, fast response time. Their
requirements are very tough. Meeting customer expectations for support is
a key point to succeeding in the Japanese market.
How about profit? Is the Japanese market as profitable as the
US market, or more profitable?
Tezuka: Very profitable versus the US market.
Will that continue, or will competition gradually force down
prices and make it less so?
Tezuka: Generally speaking, product pricing has already been reduced. But
our manufacturing costs have also been reduced, and the Japanese market
growth is doubling every year. So the profit-margin ratio is same.
Where is Bay Networks Japan heading? Will you be able to maintain
your current size by relying on outsourcing, or must the company grow?
Tezuka: The main thing for the Japanese market is maintenance. We utilize
a third-party maintenance company at the moment; that is my strategy.
I think that the typical Japanese customer will want to take one strategy,
and rely on one maintenance environment. Our main foreign competitors, Cisco
and 3Com, don't have this kind of maintenance partner because they submit
jobs to resellers, but just small and medium-size resellers. They aren't
taking care of Japan on a nationwide basis. I established a relationship
with Ricoh TechnoNet two years ago. This is a big company, with about 4,000
employees covering over 200 sites throughout Japan. This gives us a big
advantage over our competitors.
How do you handle maintenance and support for foreign multinationals,
those who need a worldwide strategy and global support?
Tezuka: Good question. We have a very unique program at this moment, called
MAP -- Multinational Account Program; a multinational maintenance program
in other words. Multinational companies generally want to utilize our direct
support capability by going headquarters to headquarters. We offer our maintenance
capability to multinational companies on a country by country basis, but
they can count on one strategy, one service procedure, one task capability.
That's a big difference between us and Cisco and others, I believe.
In general, do Japanese consumers view Bay Networks KK as a Japanese
company or a foreign company?
Tezuka: Japanese consumers view us as a foreign company. But I am a Japanese,
and I think almost all Japanese customers should want to take advantage
of our kind of approach. That's a basic sales point.
But at this moment, we are also technological leaders in this internetworking
market. The basic Japanese mind may be different from the US mind, but purchasing
mind is similar, I think. And we lead the market with our technology. If
Japanese mainframers had the same technology at this moment, many Japanese
customers would buy the products from them, I think. But they don't.
Based on your experience, do you have any advice for foreign
companies looking at the Japanese market?
Tezuka: Basically, I haven't any advice. But my policy has two aspects.
Customer support is very important for succeeding in the Japanese market.
This means maintenance capability and technical support capability. That's
a key point. The other one is the sales side. Channel development is very
important; to establish a good partner is very important. These two areas
are the key to success: sales and support.ç