| Will this be the year of the EC-Bang in Japan? In the
short-term, many barriers to effective, efficient, and profitable
electronic commerce block the way. But as the world's second largest
Internet market grows up, we could be witness to an EC blossom in Japan.
One caveat: expect the unexpected.
by Jeremy Epstein
The case has been made many times that the driving force for electronic
commerce around the world is not in the Business-to-Consumer arena (B to
C) but rather in the Business-to-Business arena (B to B). As large-scale
organizations begin to realize the cost and efficiency benefits of
implementing cutting-edge information technologies, they will increase
investment in this area. However, as David Kellar of AMI pointed out in
the April 1998 issue of Computing Japan, only Japan among all of
the Asian nations will have negative growth in IT and Internet-related
spending in 1998. The exacerbation of the economic picture -- increased
layoffs, competition on prices from SE Asian competitors with tremendously
devalued currencies -- is expected to put a squeeze on profits and will
shift focus from future investment to current survival.
Mike Antonelli, Director of Marketing for IBM's Asia Pacific
Headquarters e-Business, says that the realization for the need to
implement new IT systems "has to happen with line-of-business executives
and senior management who understand that there is a new world out there
and their business has dynamics, pressures and objectives that shape the
direction they want and need to go." Whether the upper echelon of Japanese
firms realize this or not is a subject for debate.
The relatively slow paced adoption of EC technologies in the B to B
sector does not necessarily imply that the B to C picture is entirely
bleak. Quite the contrary, there will be growth, just not an explosion, at
least not yet. Consumers, who will feel the greater pinch on their
pocketbooks of a deepening recession, should turn to the Internet to
realize the cost advantages of dealing direct with manufacturers. The
question is, which manufacturers? With the shakeups that began in April,
more and more foreign firms will enter Japan and seek a piece of the
action. Companies like Amazon.com are making moves towards entering the
Japanese market, and will leverage their extensive experiences in the US
to gain an advantage over Japanese retailers. Can Kinokuniya online
compete with Amazon? Certainly not on price. The experience and cost
advantage that foreign, primarily American, Internet-retailing firms can
summon will enable them to quickly leapfrog over the Japanese retailers.
It has long been said that the world of EC is a borderless one, and now,
with Japanese consumers having the world at their fingertips, this will
undoubtedly be true for them as well.
One key to successful B to C electronic commerce, however, is the
ability to comparison shop. This requires time spent online, something
Japanese do not have the luxury of when compared to their American
counterparts. The reason is simple: the cost of online time. According to
Bunichiro Fuji of Sony Communication Network K.K. "NTT is a huge obstacle"
to the development of EC in Japan. ISPs around Japan know full well that
at 11:00 pm, when the rates go down, "there is a huge spike of activityÉ
which lasts until 1:30 or so," according to Chris Phelan of GOL. "NTT's
rates cause [the] dramatic spike at 11:00, no question about it."
Obviously the barrier that Bill Gates recognizes as the biggest in the US
is also evident in Japan. Bandwidth, even though ISDN lines are used in
21.2% of Japanese homes, is a major issue. Most Japanese still access the
Net over 28.8 kbps modems and a normal Web page takes about 45 seconds to
download at that speed. Certainly not the most conducive atmosphere for
online shopping. This is yet an additional barrier which, compounded with
the prohibitive rates of NTT, stand in the way of EC's growth in Japan.
What is pushing the B to C market in the US? Finance, namely banks and
stocks, travel, and sales of retail items such as books, music, and
computers. In the long term, these areas "will show the strongest growth
over the next few years in terms of actual yen volume transacted,"
according to Tim Clark in the Japan Internet Report, No. 24 (March 1998).
He is probably right, yet in the short term, each of these areas will need
to markedly improve their selection, ease of use, and most importantly,
become commonplace among PC users.
In the area of personal finance, the US once again serves as a model.
In the mid-1970s the deregulation of the stock brokerage business enabled
and encouraged individuals across a wider spectrum of social class to
become more sophisticated investors. People started managing their own
money and discount brokerage accounts mushroomed throughout the 1980s. The
jump from telephone trading to PC-based Internet trading was not a
difficult one to make. Japanese consumers, however, never experienced the
intermediate step of discount brokers and furthermore, most Japanese have
little experience as active investors in the stock market. Many foreign
firms, like Fidelity and Merrill Lynch, seek the opportunity to get a
piece of the dormant ´9.2 trillion in postal savings, but pushing
consumers online immediately seems unlikely.
Though Daiwa Securities states that "the combined total of online
accounts at all its branch offices is growing at a rate of 6,000 per
month, most of the new subscribers are individual investors in their 30s
investing relatively small sums." This means that the commissions
generated from trading will not nearly be enough to drive this area of B
to C commerce. Certainly the lifting of restrictions on foreign currency
accounts could help push this along; the question is simply, how much?
As for banking, PC banking was introduced in the US in the 1980s. With
programs like Manage Your Money and Quicken and proprietary systems of
certain banks in the US, home owners adjusted to paying their bills
online. In Japan, a dearth of personal finance software and a lack of PC
banking experience makes the transition from full-service tellers or ATMs
to Internet online banking a more dramatic one.
Another barrier are the banks themselves. Anyone with a Japanese bank
account knows that 24-hour access to cash is but a pipe dream and this
lack of technological know-how and service poses additional obstacles.
Yes, improvements are being made, but gradually. Sumitomo offers full
online banking service and Tokyo-Mitsubishi, Fuji, Asahi, and Tokai banks
offer some limited services or are in testing periods. They will
eventually go online. They will have to, but the time involved in
establishing a full-blown Internet online banking service means that 1998
is not the year of the online bank in Japan.
Further, over 60% of all purchases of a single item online are for less
than \10,000. This is nowhere near enough for the big ticket items like
computers, which have made Dell #1 online with sales of $3 million per day
or Apple, with $500,000 per day, to drive Japanese B to C commerce figures
in Japan.
Jerry Yang, the founder of the search engine, Yahoo!, speculated that
the huge growth projected for Internet commerce this year will be
predominantly fueled by women. Estimates vary, but the numbers of women
online in Japan range from 10% on the low-end to 30% on the high-end. This
stands in stark contrast to the US, where close to half of Internet users
are women.
Japan is the world's second largest market with 8.5 million users, but
the consensus among Japan's Internet industry watchers is that it lags
behind the US anywhere from 12 to 18 months. Neither B to C nor B to B
commerce will take off in the US this year, next year or the year
thereafter. EC in Japan will certainly not take off in Japan this year
either.
When it is finally established, I expect three different models of
Japanese EC to emerge. The first will be a globalized B to B model, where
globally savvy and sophisticated firms will adapt to the demands placed on
them by international competition. Their suppliers and dealers will have
no choice but to adapt. The second will be localized versions of
international Internet retailing firms with extensive experience like
Amazon.com, Dell or Apple (if and when the economy picks up), which are
able to thwart Japanese competitors and sell directly to consumers. The
final group will be a national model: Japanese firms that cater to a niche
within the Japanese market, such as firms that sell ramen from Hokkaido (http://www.comco.ne.jp/gpt/kouri.html)
or other specialty items.
Yes, Japan is picking up speed, and yes, it may arrive at the EC boom
at the same time as the US. However, with a deteriorating economic
forecast, inherent domestic barriers such as NTT, in fighting between MITI
and MPT over who has ultimate control over the nascent EC industry, and a
still inexperienced user base, EC has some way to go before establishing
itself firmly within the Japanese economic landscape.
Back
to the table of contents
Back to Top
Page
|