Information-Technology Invasion

With the July 31 US declaration targeting Japan for possible sanctions, trade friction between the two countries looks unlikely to ease in the coming months. The US has weakened its GATT-thumping free-trade stance by threatening various trade measures in an attempt to pry open Japan's markets for foreign firms. And, by quibbling overlong about Japan's protectionist strategies without gaining appreciable ground, the trade talks have lost their legitimacy.

In fact, though, the framework talks are only treating the symptoms of foreign companies' woes in Japan. The solution lies in identifying technology that Japanese companies desire enough that they will deal with foreign companies on equal terms. One technology where this potential exists is telecommunications.

Economic growing pains

Japan's markets have been a study in managed trade that defies international trade agreements like GATT, but the nation's prosperity is now threatened by the strong yen and a still-uninspired economy. These factors will inhibit the acceptance of any "t erms of surrender" in the trade war -- the Japanese can point to the fact that, in yen (if not dollar) terms, their surplus is no longer growing. Factor in the quiet chaos of a quick succession of prime ministers, and a political solution looks doubtful.

However, the hope of Japan's telecommunications market opening is far from lost. Traditional Japanese companies are finding that they have to work harder and revise their strategies to remain competitive. The bursting of the bubble economy and subseq uent movement of manufacturing abroad has run many of Japan's backbone companies -- the family businesses and small production houses out of business. The move to the so called information society will cause even more changes. Optimistic reports proclaim that multimedia will become a 123-trillion yen industry, but in fact most of that industry will be recycled, not new. Just as many jobs and profits will be generated by the new technologies and services, many jobs will be lost.

Ruts in the road

Japan's major hurdle in developing the level of infrastructure which is needed to take advantage of the information era is its non-consumer-oriented market Japan is only now trying to bring its overlooked information system online. A survey in January of this year found that only 5.7% of Japanese households have computers (compared with 15.8% in the US) and only 1000 or so CD-ROM titles exist (compared with over 4000 in the US).

Much of the unpreparedness of the Japanese information infrastructure can be blamed on governmental overmanagement of the market. While market management can be a strong defense against economic turbulence, it also as a block to market indicators of the consumer desires, which inevitably leads to an uncompetitive market. In announcing sanctions, Mickey Kantor described Japan's procurement tactics as "development of technical specifications that favor domestic suppliers, and a lack of clarity and proc edures to allow foreign firms to compete for subcontracts." An example of this lack of competition lies in the recent supercomputer tenders of a government source and an academic source; in each case, only one company bid for and (of course) received the contract. And, as shown by the CAPTAIN videotex service and Hi-Vision, both developed under the supervision of a government ministry, failures can be expensive.

Crumbling walls

It would be a mistake to count Japan out for its late start in the infrastructure race. In many ways, the current situation favors Japan. The future is not about innovation, but implementation -- an area Japan has traditionally dominated. So while the current state of Japan's information systems is behind the times, with the experience of the recent recession and a hefty bankroll, Japan has the resources and drive to pick up and move on.

However, the Japanese government is under pressure to move fast in developing Japan's telecommunications infrastructure. To speed up the process, many areas of the telecommunications market are being opened in order to lure foreign firms (and their t echnology and expertise) to Japan. Japanese companies are making alliances to secure technology and services from foreign partners. In return, savvy foreign firms have the potential to develop true partnerships in Japan and to increase their share of a gr owing market.

Ultimately, three factors will spell success for foreign information-technology companies in Japan: the pressure on Japan to open its markets, the race to build an information infrastructure, and Japan's fight to stay competitive. Separately, the fac tors add up to little (as they have in the past). Together, they can spell success for the patient foreign firm.