E-Commerce (A Special Report):
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A New Model -- The Route to Asia:
For companies wanting to get a start selling to the Japanese market, the Net may be an easy way to go
By Bill Spindle
 
07/12/1999
The Wall Street Journal
Page R22
(Copyright (c) 1999, Dow Jones & Company, Inc.)

TOKYO -- Never mind those infamous Japanese trade barriers. Darryl Peck and his company cracked the Japanese market with hardly any effort -- via the Internet.

Mr. Peck's company, Cyberian Outpost Inc., based in Kent, Conn., didn't follow the usual rules for Japanese trade, such as tailoring its computer software and accessories for the country's discriminating consumers. The company's Outpost . com site contained no Japanese. But one day in March 1995, an e-mail arrived at the company from a satisfied Japanese customer.

"Some guy just placed an order, and 48 hours later it was at his door in Tokyo," says Mr. Peck. "He was flabbergasted it could arrive so fast."

In the e-mail, the customer vowed to tell others, and he posted a message on a popular Internet bulletin board. "The next day, we had 100 orders from Japan," says Mr. Peck. "The word spread very, very quickly." Since then, Japan has become the company's top overseas market.

Online commerce won't solve many of the problems foreign companies have when they try to crack the Japanese market. It won't even remove the need for significant investments in bricks and mortar in many cases. But the Internet offers overseas companies a crucial tool they've often lacked: a cheap toehold in the market to gauge how they might do if they spent the bigger bucks it takes to make significant inroads.

While the Internet has been slow to catch on in Japan -- thanks, in particular, to the high cost of connecting -- about 14 million Japanese now use the Internet, and many observers expect the number to grow rapidly. The Internet user population could swell to 27 million in the year 2001, with e-commerce jumping to one trillion yen ($8.5 billion) from 200 billion yen ($1.7 billion) today, predicts Access Media International, an Internet research firm in New York.

As a result, the Internet is giving small and midsize companies -- the kinds of businesses that usually shrank from the cost of a venture in Japan -- a chance to test the waters at low cost.

CDNow Inc., a Jenkintown Pa., company that sells music and music publications over the Internet, edged its way into the Japanese market with four years of sales of U.S. titles shipped to Japanese customers who ordered them over the Internet. The company's site wasn't written in Japanese, and the company had no physical presence in Japan, says Clive Mayhew-Begg, CDNow's vice president for international operations. "It came as a windfall," he says.

But that windfall gave the company the confidence to eventually invest millions of dollars to make a serious move into Japan.

About 18 months ago, CDNow linked up with Shinseido Co., a large music distributor, to move the company into the mainstream of the Japanese market. The deal has allowed CDNow not only to offer domestic Japanese titles, but also to market itself locally with Japanese-language advertising, newsletters and Internet-based chat groups. The company has also added the ability to let Japanese customers pay with yen credit cards.

About 20% of CDNow's $100 million in revenue last year came from outside the U.S., with Japan far and away the largest single foreign market, Mr. Mayhew-Begg says.

The need to gradually tailor a site to Japanese tastes has, of course, sprouted an Internet version of an age-old breed: the consultant hawking knowledge and insight into the Japanese market. And in their case, as well, they are growing considerably faster than their brick-and-mortar colleagues.

Tim Clark started Tkai Inc. back in 1994, when Netscape didn't even have a browser that could read Japanese. But in February 1995, with the help of Tkai, Netscape introduced the first browser that made it easy to read any site written in Japanese characters. "That's when the thing just exploded," he says.

His company, based in Portland, Ore., has grown rapidly helping companies translate their site and product descriptions into Japanese, as well as figure out the peculiarities of delivery services and other unique parts of the Japanese market.

Tkai's revenue will come in between $600,000 and $1 million this year, he says.

With the help of Mr. Clark, Cyberian Outpost also gradually increased its investment in Japan, according to Mr. Peck. The company has now translated major portions of its site into Japanese and would like to eventually have warehouses in Japan. But he says it would have taken him far longer to consider such steps if the market hadn't reached out and bit him first. "There's never been a way for companies like ours to reach consumers on a global basis without spending hundreds of millions on infrastructure to do it."

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Mr. Spindle is a staff reporter in The Wall Street Journal's Tokyo bureau.