From Riches to Rags to Riches, Japanese Style

Computing Japan: Let's go back to your experience with SORD, your first business venture. When did you start the company and how old were you at the time

Shiina: I started it in 1970, when I was 26 years old.

CJ: SORD was a big success in the early eighties, wasn't it?

Shiina: Yes, we did well. In particular, 1983 was a big year for us. We had sales of 22 billion yen, and if you included our subsidiaries - in Ireland, Singapore, China, and New Zealand we had total sales of 35 billion yen. In total, there were 1,800 s taff.

CJ: SORD grew very quickly perhaps too guickly, and in 1 C)84 you van into problems. What happened?

Shiina: Almost all of my problems were because of having a big mouth! I made a lot of announcements that I later had to revise.... Anyway I think that a large part of my problem was that I was a thorn in the side of the Japanese establishment. One day, back in February 1983, the president of a famous company called me and asked me to sell him my company. He was very persistent, and at one stage he warned me, "Mr. Shiina, you had better sell your company now, while you can." We talked and talked, but in the end I decided not to sell.

Then, in the following months, some really strange things started happening. Suddenly, for no reason I could track down, the delivery of parts would stop. And the leasing companies decided not to extend credit to our customers any more. Many things li ke this happened.

CJ: So you think that someone was out to get you.

Shiina: I'm sure there was an orchestrated smear campaign, and the people conducting it were very skilled. They spread rumors every month; they would contact my larger customers and say things like "SORD has a financial problem," and that we would go b ankrupt soon. They spread rumors to our bankers, our vendors, the Nikkei newspaper, and even MITI! It was a terrihle experience. It really hurt us because, like most Japanese companies, we used promissory notes. After enough such rumors, the banks began r efusing to honor our notes.

CJ: Was there any truth to the stories?

Shiina: No! In 1983/84 we had healthy sales of 35 billion yen, and the profit was about 2 billion yen. After the rumors, though, everything changed; it was a bad experience. This country really does "hammer down the nails that stick up." The way I was dealt with was very Japanese, and very final.

CJ: Did you learn anything positive from this experience?

Shiina: Well, first, that it is a good idea to have a mass media outlet through which to fight rumors and other manipulation. I now produce publications for this reason. Second, the chips - I must have my own supply of chips to protect myself from such an attack again. When I started Preside, these were my two main priorities. Particularly concerning the chips, I never want to repeat the experience whereby the supply channel can be cut off by someone else.

CJ: After you decided to sell to Toshiba, did you have any money left?

Shiina: Of course! I sold out for about 3.5 billion yen and shared this with my partners. Unfortunately, the law at that time stipulated that anyone selling a family-owned company had to pay the maximum tax rate. So I paid 85% of the profits in tax! No w the law has improved, but it was too late for me. I guess I have only myself to blame: I should have planned ahead. But in those days I wasn't so smart. All I knew how to do was work hard and make the company bigger. (Laughter.)

CJ: Were there any connections between Toshiba and the people conducting a smear campaign against you in 1984?

Shiina: No, no connections. The press speculated that there might have been, but I am confident that there were none.

CJ: Did you leave SORD immediately after selling the company to Toshiba? Shiina: Oh no. I was very sincere about rebuilding the company, and I had lots of ideas about how to revive it to its former position within 2 to 3 years. I knew by then what the problems were, and I made lots of proposals to Toshiba. Unfortunately they a re an old and traditional company and couldn't accept my ideas. I got impatient - I'm an entrepreneur, after all - and couldn't wait for change to come. After two years, I quit and started again.

CJ: When did you form Proside? Shiina: I established Preside in June 1987. We started business in October of the same year.

CJ: When you got started for the second time, did you start with any partners?

Shiina: Yes, two of my directors came across from SORD: Mr. Nobuhiro Sate and Mr. Akihito Hiroishi. If I had been alone, I might have gone to the States to study and start a new company; because I had these good friends, however, decided to stay. We fo rmed SORD together. Sate-san was the first designer of a PC operating system in Japan. Mr. Hiroishi originally joined me 22 years ago, when he came over from Sharp. He was actually the first designer of a commercial PC in Japan, when he designed an 8080 m achine in 1972.

CJ: What was the marketplace like in 1987 when you established Proside? I remember that the PC/AT had just come out, and we were all using DOS 2.11.

Shiina: Well, there were almost no IBM clones then, and NEC owned nearly all of the PC market. No one wanted to fight them. I felt, though, that this offered a great opportunity. My fundamental strategy with Preside was very different to that I followe d in SORD. Because we were a small com pany, instead of trying to do everything ourselves, I lined up many foreign vendors to enter the Japanese market. I had, and still have, a number of suppliers of software, peripherals, chips, and other hardware.

In October of that year, I got involved with a company called Tomcat, which developed a PC/AT that could also run NEC 9800-series software. The NEC customers were very eager to try out our equipment, and we had a lot of publicity, which really helped Preside and myself gain market credibility. It became a "come back" campaign. Unfortunately, Tomcat was unable to deliver on the actual final products, and the projects didn't progress any further.

CJ: How big was the market then?

Shiina: The total market size for IBMs and IBM clones in 1987 was around 10,000 machines per year. Preside imported and sold about 800 units, and from the first year we enjoyed good success. Our best customers were Japanese manufacturers making printer s and other peripherals, who used to buy 10 or 20 at a time. Since that time, Preside has never suffered an annual loss.

CJ: What happened in the industry after 1987?

Shiina: That was a good time for a small company like us to grow. In 1988 and 1989, we had the AX machines. I personally never thought that they would successfully take market share from NEC, because they depended on a proprietary keyboard, proprietary video card, etc. - and I was right.

Then, in 1990, IBM came out with DOS/V. For the first time, Japan had an open systems solution that was capable of challenging NEC. I was very excited, and we redoubled our efforts to gain market share.

CJ: What does your business look like today?

Shiina: We have 45 full-time staff and a factory with about 30 part-timers. Turnover is around $2 million to $2.4 million per month. We sell about 8,000 PCs per year, which is probably about 2% of the DOS/V market.

CJ: V4hhat do you see for the Japanese market over the next 2 years?

Shiina: I think that the Japanese market has a great future, especially for DOS/V. I expect the DOS/V market to grow by around 40% this year, to a half-million machines. Next year, there should be around 800 to 900 thousand DOS/V machines sold - about one third of all new sales in Japan.

CJ: What does this mean for market leaner NEC?

Shiina: I think that NEC will generally keep their sales volume at about the same level as now; but as the market size expands, their market share will drop off. I predict that this year NEC will drop to 47% of the overall market, and next year down to 43%,. Three years from now, they will have about 40% of the market - I don't think they'll go much below that.

CJ: What lies ahead for Apple?

Shiina: Apple is at its peak. Their maximum market share will be around 15%. They found a ready market among the middle-class buyers, but these people have now bought Macintoshes and that market segment is saturated for the time being. Further market e xpansion has to be with the more economy-minded buyers, especially among individuals and large corporations, where Apple is not so strong.

CJ: What about the general expansion and size of the Japanese market?

Shiina: As far as market size is concerned, 1 think the number of machines sold last year was around 2.1 million units. Next year, it will probably rise to 3 million, and within 3 rears it will expand to 4 million. One reason for this strong growth is that while 2.5 million people bought PCs last year, even more bought wordprocessors. Now the people with wordprocessors are looking at the close prices and functionality of PCs, and they are thinking to change over. Probably about half of these wordproces sor users will change over in the next 4 pears.

CJ: Back to the business side, do you have any employee incentive schemes to improve performance?

Shiina: No, we have no programs. We tried once before, three or four pears ago, but it actually resulted in decreased efficiency, not an increase. Japanese people like to be part of a group and not stand out. This is an interesting generalization about the Japanese that I think really does hold true. I also considered giving stock options, but the problem is that it is very hard for a Japanese company to get listed on the stock exchange. Employees with stock options can't realize their assets if we can 't sell shares on the open market. Preside is currently paying dividends of around 5% to its shareholders. For the employees to be motivated to hold shares for the dividends, I think we'd have to pay 10% to 20%. Otherwise, they would prefer to leave their money in the bank where they can use it anytime.

CJ: Are you looking for investors or business partners?

Shiina: I'm very open to approaches especially proposals for joint ventures. What we can offer to a company is a maintenance organization and a sales database of over 100,000 customers. These are the invisible assets that can make or break the efforts of a foreign company coming into Japan. Sometimes I try to explain to the bank people that invisible assets are valuable, but they don't believe me! (Laughter)

CJ: Where do you see Proside being in two to three years?

Shiina: I'd like to continue business in a similar fashion. We'll probably grow to 20 to 30 stores. We'll concentrate on strengthening our mail order system.

CJ: Out of the new wave of entueercneurs coming up through the Japanese computer industry, who really stands out for you?

Shiina: Mr. Son of Softbank. I really respect him. He is young, conservative, has good focus on his business not too diversified. He will be very successful and will probably list his company this year. Most other entrepreneurs can't control themselves to the same degree. I sometimes meet with him. He tells me that he targets his energies on his "portfolios" - that is, only on those businesses that have a good yield.

CJ: Finally, Mr Shiina, what are the best prospects for a new start-up or foreign company establishing itself in Japan?

Shiina: I think that today, software is really weak in this country. Hardware is more difficult. Software has become a booming market because of Microsoft's Windows 3.15. There are many chances for the entrepreneur right now. Localization is easy to do , and because most Japanese companies over the last 10 to 15 years have con centrated so much on work processes, they have lost their creativity. It's a big market for new arrivals.