The Pulse

The Word on the Street from the Heart of Tokyo

HOW DO YOU SELL to the mobile giant, NTT DoCoMo? It's a question that plagues any small player in the mobile arena in Japan, but if you're a foreign company that question mark may be followed by an exclamation point. DoCoMo can be a hard nut to crack, but every once in a while, a foreign company comes along that's just too good to resist.

F5 Networks of Seattle is one of those companies. It has 450 employees, including a 15-person operation in Japan, and pulled in $108.3 million in revenue in fiscal 2002. About 20 percent of that revenue comes from F5's tiny Japan office, said Jeff Pancottine, senior vice president of marketing and business development at F5 Networks. Pancottine explained his company's Japan strategy at an event in Seattle sponsored by Jetro and the Japan America Society of Washington.

F5 Networks specializes in application traffic management. In laymen's terms, it makes software to control Internet traffic, content and security and helps limit bandwidth congestion and speed up servers. The company was founded in 1996, but didn't go to Japan until 1999. "We were late to the market," Pancottine told the crowd of almost 100. So what's the secret to doing business with DoCoMo, or any other Japanese client, for that matter? "You have to have a unique solution and get designed in," he said. "It's a very technical audience that you are selling to. They love technology and want to understand it and internalize it."

In Japan, F5 "started out in the wireless space and moved out from there," said Pancottine, adding that "in the US, it's the other way around." The benefits of that strategy have been many, he says, since Japan is the world leader in mobile Internet usage. "We are now leveraging everything we've done in Japan in other markets."

F5, which won a Best New Product award at Wireless Japan 2002, also works closely with Tokyo Electron. Pancottine says the key to success in Japan's wireless sector is partner selection ("It's important to have a good partner who understands how American high-tech companies do business"), having an easy-to-understand channel program, giving the local subsidiary some autonomy and, perhaps more than anything else, quality. "They don't like problems," he said of his Japanese partners. "Obviously, everyone has problems. It's a matter of how quickly you fix them and how many you have."

And one more thing: DoCoMo officials say that F5 has some of the best drinkers in the business. -- Bruce Rutledge

Tokyo Landlords Offer
Six Months Rent Free
to Lure Office Tenants

IN BRIEF: The office space glut has pushed Tokyo landlords to offer as much as a half year of free rent to lure businesses to vacant office space. Another 2 million square meters of office space is coming onto the Tokyo market this year, forcing rents down and prodding landlords to get creative. But rents are still double those of New York, according to media reports, and some experts say land prices have yet to bottom out.

COMMENTARY: Prices probably haven't hit the bottom yet. As real estate expert Stefan Whitwell wrote in our February issue, those who want to invest in land in Japan's large urban centers should be prepared to add value to that land in order to turn a profit.

IBM Japan, HP Japan Lead Way in Unix Server Price War

IN BRIEF: The Japan arms of foreign giants IBM and Hewlett Packard slashed prices of Unix servers in late April in a move that will almost certainly going to pressure NEC, Fujitsu and other domestic server makers to follow suit. IBM Japan cut the prices of its p630 and p650 servers by as much as half, and HP Japan cut prices on servers like its rp4705 midsize server by as much as 20 percent.

COMMENTARY: The price cuts are liable to prompt Japan's big makers and Sun Microsystem to respond, and eventually some of the less agile competitors are likely to be forced out of the market. After all, the overall market for servers has been shrinking, yet foreign shipments to Japan have jumped this year as much as 30 percent.




Sony Promotion of Kutaragi Puts Games on Par with Electronics

IN BRIEF: Sony promoted games division chief Ken Kutaragi to executive deputy president this spring, putting Kutaragi one step closer to the corporate presidency and elevating the games division to equal footing with the electronics division. Kutaragi will also remain president of Sony Computer Entertainment.

COMMENTARY: Kutaragi has built Sony's games division from a minor business into the driving force for the company's profit. Games accounted for more than 35 percent of Sony's profit in the first quarter of 2002. Kutaragi will now have a more prominent position from which to preach the gospel according to Sony: that the networked world is fast becoming a reality.

Bank of Kansai to Buy Majority Stake in Kansai Sawayaka

IN BRIEF: Bank of Kansai and buyout king Wilbur Ross' Kansai Sawayaka Bank have agreed to merge, according to Japanese press reports. Bank of Kansai, which is affiliated with Sumitomo Mitsui Financial Group, will turn Kansai Sawayaka into a subsidiary by this summer and absorb it by next February. Ross' fund will continue to hold a minority stake.

COMMENTARY: In 1999, Ross tried to persuade the Rothschild bankers to buy failed Kofuku Bank in Kansai, but they resisted. Ross then formed his own fund, WL Ross & Co., raised JPY24 billion and bought the bank, which was relaunched at the end of February 2001. Just a little more than two years later, he's found a buyer. Here's what he told us in a June 2002 interview when we asked him why Kofuku?

"We felt Kofuku had good branch coverage and its problems were fairly specific. They did not involve morality questions -- no self-dealing or other inappropriate transactions. This is very important, because if you have problems with yakuza, it is very difficult to achieve a turnaround. Kofuku rang a lot of other bells for us, too, so we went to the government and asked to be invited to bid."

He also told us that a Tokyo purchase would be next: "Based on what we've done, we feel we are ready to compete in Tokyo, and we're very keen to enter."

NTT to Slash Pay Phones by 92,000

IN BRIEF: In 1985, there were 935,000 pay phones in Japan. By the end of this fiscal year, there will be 490,000 left. NTT East and West will get rid of 92,000 of the phones during this fiscal year as demand for the once ubiquitous machines dwindles. The companies lost more than 34 billion yen in the pay phone business in 2001.

COMMENTARY: Visiting Japan on business? Stop by a convenience store and pick up a temporary cellphone and save yourself the aggravation of searching for a pay phone, which is quickly becoming an endangered species.




Tourism Industry Hits the Skids

First a weak economy, then war, now SARS. The tourism industry is reeling from all three, and as a result, overseas travel this spring and summer is expected to be way below average. The Japan Association of Travel Agents (JATA) released data that showed package tours as being down 37 percent year on year in April and June, and 50 percent in May. Japan Air Systems has asked some of its flight attendants to take unpaid leave during May and June to deal with the downturn, the Nikkei reported.

Package tours to Asia are down a full 65 percent, according to JATA.

The association released a report on the industry in February that was slightly optimistic about a rebound because of increased travel from Japan to other parts of Asia. Here's an excerpt:

"Recovery of travel demand for the US, including Hawaii, is quite slow. It seems that many of those seeking to avoid danger select Asian destinations, especially China and Vietnam... China has become more convenient for Japanese to visit both in terms of cost and distance, thanks to there being more airline services available. Various tourist spots in China are often featured in the Japanese media, and this appears to have brought on a wave of travel demand for this neighboring country."

But SARS has destroyed that trend in a hurry. There's good reason to believe the current combination of global political uncertainty, terrorism concerns and disease will hit Japan's travel industry far harder than 911 did. Let's hope I'm wrong. -- Bruce Rutledge