Japan's PC Market ó The Beat of a Different Drummer
Long considered "unique," the Japanese PC market is at last entering the mainstream. Virginia Kouyoumdjian looks at reasons for the recent changes in the market and speculates on likely future trends.by Virginia Kouyoumdjian
"Japan's Personal Computer Market Overrun by Maniacs!"
That may sound an unlikely headline, but it has been very much a fact of life until recently ó and one of the reasons the Japanese market is so far only about one-fifth the size of the US market. Of course, in Japan a "maniac" is not someone who runs around attacking innocent bystanders with a discarded hard disk, but rather a devotee of personal computers whose love of machines and technology borders on the "maniacal." And until recently, it was the wants and needs of these "computer maniacs" that drove the Japanese PC market.According to Yasunori Kanda, General Manager of Fujitsu's Personal Systems Business Group, Japanese manufacturers are partly to blame for the situation. Japanese manufacturers did little, he feels, to convince consumers that computers were easy to use and relevant to their lives. As a result, most people held onto the belief that personal computers were complicated devices suited only to antisocial nerds.
Keyboarding skills a hurdle
There were other reasons that the progress of PCs in Japan was not very smooth. The first and most obvious was a lack of experience with that natural stepping stone in the life of most western users: the typewriter. The average Japanese was not familiar with keyboards, so learning to type was a hurdle to using a computer. (Before the advent of electronic word processors and computers, Japanese "typewriters" capable of printing even the 2,000 "basic" Japanese characters were desk-size monstrosities.)An even bigger problem was the language itself. Handling the Japanese combination of kanji pictographs and the kana syllabaries is a much more sophisticated task for a PC than handling the western alphabet. And the language form puts an extra layer in the processing of writing ó information is commonly entered from the keyboard in romaji, appears on the screen in kana, and must then be converted (by cycling through a listing based on pronunciation) to kanji. Depending on the efficacy of the software, this can be a complicated and time-consuming process.
Many manufacturers were initially reluctant to spend the time and money to develop computers with these capabilities, which led to a typically Japanese phenomenon: the dominance of the market by one company. For many years, NEC ó the one company that did make the effort in the early and mid '80s to provide efficient kanji processing ó enjoyed the spoils and held a 70%-plus market share. Although competing computer systems were eventually introduced, all used a proprietary operating system (another typically Japanese phenomenon), so that users with an investment in software tended to stay with the same maker for replacement or additional purchases. Until the advent of DOS/V, there was no such thing as an "open system" in Japan.
The dominance by NEC led to virtually no competition, and prices remained extremely high even as they tumbled elsewhere. The average PC configuration remained beyond the pocket of the average consumer. And that was that.
Changes in environment result in strong growth
There are clear signs that all this is finally changing. While final figures for 1994 PC sales are not yet available, estimates are that they will surpass 3.2 million units, an increase of 30% over 1993. Although this growth rate is impressive at a time when other spending patterns have remained slow in a depressed economy, the base is still very small in comparison to the US market (nearly 18 million units). This suggests that the growth potential for Japanese PC sales over the next few years is enormous. Dataquest Japan, for example, foresees an average annual growth in PC sales of over 20% for the next five years. The reasons for the growth include a reversal of some of the earlier stumbling blocks. The introduction of DOS/V as a standardized "open" platform in late 1990 gave Japanese users access to the enormous wealth of software written for PCs worldwide. At the same time, it opened the door for the smaller overseas manufacturers ó Dell and Compaq, for example ó to enter the Japanese market with a fighting chance. This, in turn, brought real competition to the PC world in Japan for the first time; prices began to go down, and they are now starting to come into line with other consumer electronics products. It is of strategic importance to the growth of the market that one can now buy a PC for about the same price as a video camcorder.Multimedia drives interest in PCs
One crucial factor in the growth of the PC market, especially during 1994, has been multimedia. In the same way as it has become the catchword of the industry in North America and Europe, multimedia has proved enormously appealing to the Japanese consumer. Most personal computers now ship with internal CD-ROM drives, and some manufacturers (such as Apple) ship up to 90% of their desktop machines with CD-ROM drives.Although multimedia is the operative word (nearly every new machine is described in advertising as a "multimedia computer"), the actual usage is more deeply centered around CD-ROMs, high-quality sound, and TV-tuner capability. The authoring-type of multimedia applications generally hyped in trade publications and by industry gurus is still beyond the interest of most Japanese buyers. Consumers are looking for easy and immediate pleasure, and they have few illusions about being suddenly transformed into accomplished artists by their computers.
It is difficult to draw clear demarcation lines between the home and business user, since there is a fairly large gray area of people who work with PCs at home, and many machines double for both business and home use. Nevertheless, most current estimates put the home use market in Japan at no more than 20% of the total. (In contrast, home use systems in the US accounted for fully half of the market in 1994.) On being asked the reasons for the low diffusion rate of computers into Japanese homes, there is a uniform response from domestic computer companies: "Japanese citizens did not have the urgent need of North Americans to buy PCs to do their taxes." While this may seem to be a frivolous explanation, it certainly did give the average American household a "serious" reason to invest in a personal computer as soon as high-quality tax-related software became widely available at affordable prices.
Consumers always look for a "hook" on which to hang their purchases, and with prices being so much higher in Japan until recently, there was little justification for splurging. Here also, however, the environment is changing. Most manufacturers think that the home market will be easier to develop than the business market in the short term, since it is not based on a different set of business practices. The initial spurt in CD-ROM growth was based on the large interest in, and availability of, "adult" software. Soft porn has gone in the past year, however, from accounting for the large majority of all CD-ROM titles to less than half. Fujitsu's Kanda is philosophical on the matter. "It's rather like video software. Many people initially bought VCRs so that they could watch dirty movies at home, but the market moved away from that very quickly, and it now accounts for only a minor percentage of video usage. But it did serve the purpose for initial penetration and has obviously done the same for CD-ROMs."
An opportunity to reinvent the company
The multimedia phenomenon has come at a very convenient time for Japanese computer manufacturers ó it gives them an opportunity to "reinvent" themselves and relaunch their products with a completely different mindframe. The computers of this new generation are being marketed as "family purchases" that offer something to all generations in terms of usefulness, education, and just plain and simple fun.This is seen as one of the big differences with the US, where personal computers generally find their way into dens or individual bedrooms. In Japan, computers are most likely to be found sitting in the living room (and not only because Japanese bedrooms are small and most houses don't have dens). Market leaders NEC and Apple both point to a large number of first-time buyers in 1994, especially for the low and mid-range models. For example, 60% of those purchasing Apple's Performa line of computers were first-time buyers.
Some of the uses to which these personal computers are put might appear odd to the typical American consumer. According to Hiroaki Yokoyama, Manager of Market Analysis and Planning in Apple Japan's Marketing Department, karaoke is a particular favorite. Also, he says, "the Japanese love multi-use equipment, perhaps because the average Japanese home is not very large; so we try to adjust our product marketing accordingly. For example, the Performa 630 comes with a standard TV tuner in Japan, whereas this is an option in other markets."
One of the ways in which personal computer makers in Japan are hoping to attract more home users is through the entertainment sector. The diffusion rate of video games in Japan is extremely high, and computer companies are using the growing concerns of Japanese parents as a way to draw purchases away from dedicated game machines. Although the level of graphics in personal computer game software has not matched that of dedicated game machines in the past, here, too, CD-ROMs have done a great deal to improve the situation for PCs. (And computers can be used for education as well, which appeals greatly to the average Japanese parent.) Apple is taking a lead in the entertainment area, with the introduction of its Pippin CD-ROM-based multimedia platform (which has been licensed to Japanese game manufacturer Bandai; a player is planned for the market by the end of 1995). The Pippin platform uses the Macintosh OS and the Power PC microprocessor.
Major difference in market slant
Another area that is tied in to the home market, but with a very different slant, is the educational market. Here again, there are striking differences in perception. In North America and Western Europe, personal computers in schools are used as tools to teach other subjects; in Japan, they are often considered an end unto themselves. Many schoolchildren still learn to program in BASIC, a skill of dubious usefulness nowadays. Accusing fingers are also pointed at Japan's teachers, who have an image as a rigid and somewhat lazy bunch, often reluctant to embark on anything that might require them to acquire new skills or work even longer hours.In fact, the stilted approach to computer education in most schools is being used as an effective marketing tool by many computer manufacturers. Parents are encouraged to buy a computer at home for their children because the schools are not teaching this very important skill.
Different business practices slow the corporate advance of PCs
Although most manufacturers are looking primarily to the home market for expansion, the business market remains much more significant in Japan than in North America. Here, too, there are striking differences in the way PCs are used, as well as the extent to which they are utilized. Those used to seeing computers on virtually every desk of an American corporation might be surprised to walk into a typical Japanese office. Huge offices in Japan often have only a few token machines sitting in a corner, and even these are likely to be Japanese word processors rather than personal computers. According to Kanda of Fujitsu, "The problem lies with the way the Japanese usually do business, preferring face-to-face contact to other forms of communications. Since the office memo has never been used as an efficient office tool, electronic mail does not have immediate appeal. LANs are still used less in Japan ó and where they are installed, they are often used to link larger machines rather than personal computers."The recession has not encouraged corporate expenditures on computer systems; but as the economy recovers, demand is expected to improve. According to Yoshiaki Okugawa, Manager of the Sales Promotion Department at NEC's Personal C&C Marketing Division, "The corporate market hasn't even achieved a fifth of its potential here. The issue now is to find the right balance between corporate needs and the available technology." The changing business environment will bring enforced changes with it. "The traditional Japanese way of doing business involves too much time and too many people," says Apple's Yokoyama. "The need for cost reductions will inevitably lead to some sacrifices in the way of doing business, and this should be a window of opportunity for computer manufacturers."
The decreasing price gap
Across the board, price has been one of the pivotal issues in encouraging the spread of personal computers. There also have been significant changes in distribution, which have led to progress in both price and availability. A few years ago, a trip to Akihabara, Tokyo's electrical wonderland, yielded only a limited presence of computers; electrical and audio-visual products reigned supreme. Nowadays, though, most of the action is in the personal computer stores, which are growing larger and more numerous by the week.Superstores such as T-Zone and Sofmap offer as good a selection of products as that found in any American computer superstore, and prices are gradually coming into line as well. It is not unusual to find new models openly advertised for 40% to 50% less than the manufacturer's price, something previously unheard of. (Before, Akihabara price negotiations were done individually between the customer and a salesperson, and discounts of 25% to 30% were considered "good deals.") A quick comparison of T-Zone prices for the Apple Power Mac range, and even Gateway 2000 computers on the Windows side, show them to be either in line with, or no more than 10-15% higher than, prices quoted in advertisements in US magazines.
Further, it is now possible to buy a basic personal computer system for under ·100,000 ó but most manufacturers don't expect prices to go much below this level, especially given the popularity of multimedia machines. And "plug and play" all-in-one machines have an advantage in the new market. As NEC's Okugawa points out, "With home buyers increasing in numbers, there is a greater tendency to want a complete system that will work immediately and easily rather than something you have to fiddle with. This is a manifestation of the move away from specialized users to a more general user base."
One major difference in the distribution pattern seems to be the lack of success of mail order sales in Japan. This reflects a generalized wariness of mail order buying among the Japanese public, a factor which is changing slowly. Many of the early Japanese mail order houses made a tactical error when they offered prices that were not much lower than the cheaper Akihabara retailers, but with absolutely no advice or service to go with their wares.
Changes in market share against a background of growth
Against the background of strong growth in all areas, there is considerable competition among computer manufacturers for a larger slice of a fast-growing pie. NEC's market share domination continues to shrink slowly. According to figures compiled by IDC Japan, it stood at just 44% in the second quarter of 1994 ó down from 49% in 1993. The size of the pie is growing fast, however, so NEC still saw a 27% increase in unit sales of personal computers in 1994.NEC is working hard to distance itself from its earlier image as overpriced. In spite of protestations that it did not intend to lower prices across the board in response to price cuts by several DOS/V vendors, NEC announced in January 1995 one of the cheapest computers available in Japan: a dual floppy drive unit (the 98FELLOW PC-9801BX3) that retails for ·98,000 ó a full 45% cheaper than the next-cheapest NEC personal computer. NEC's most popular models, however, remain the 98MULTI CanBe series ó multimedia computers that are typically discounted at prices ranging upward from ·215,000. Second place in the Japanese market is firmly held by Apple Computer. IDC Japan's estimates are for a second-quarter '94 share of 14.2%, up from 13.4% in 1993. Indications are that this figure had increased even more by the end of 1994. In its figures for fiscal year 1994, Apple Japan announced an 86% increase in shipments, from 280,000 units in 1993 to 520,000 units. The growing significance of Apple in the Japanese market is reflected in the retail environment; large stores now typically devote one floor to NEC compatibles, another to DOS/V machines, and a third to Apple computers.
Some of the other players in the Japanese market have also strengthened their positions in the past year, but these have generally been larger companies paying more attention to their personal computer business rather than small upstarts. In the words of NEC's Okugawa, "Japanese consumers want a greater level of support and service. They need to have real confidence in the manufacturer. We consider our real competition to be companies like Fujitsu, Apple and IBM."
Following a thorough rethinking of its distribution networks, and thanks to the popularity of its ThinkPad notebook PCs, IBM saw its market share increase from 6.8% in 1993 to 9.8% in the second quarter of 1994 (according to IDC Japan) to grab third place overall. Fujitsu has also increased its market share, from 6.7% in 1993 to 8.2% in the second quarter of 1994, and holds on to fourth place in the rankings. The company has grown increasingly aggressive in its approach to the personal computer market and is looking to eventually achieve the same market share as it has for large computer systems (which is over 30%).
Fujitsu's early exposure to multimedia machines through its FM-TOWNS series, the first personal computer to come with a standard CD-ROM drive, gives it a strong image in this high-growth area. This is being consolidated with the popularity of the FMV DESKPOWER, a DOS-V machine with 8M of RAM, a 420MB hard disk drive, CD-ROM drive, 15-inch monitor, and bundled with six CD-ROM disks (including Ichitaro, the most popular Japanese-language word processing program). The manufacturer's list price of ·238,000 was considered ground-breaking for such a powerful machine, and it quickly became Fujitsu's best-selling PC after its introduction in October 1994.
Among foreign manufacturers, Compaq's progress is notable. According to IDC Japan, it increased its market share from 1.8% in 1993 to 4.5% by the second quarter of 1994, which places Compaq seventh in the list of top-ten vendors in Japan. Compaq machines are widely available at all types of outlets, in contrast to those of other American or Southeast Asian manufacturers that are seen only at warehouse type outlets. And Dell, which is concentrating on a direct-sales, individualized system strategy in Japan, weighs in as number ten on the list.
An attractive and lucrative market
Overall, the Japanese personal computer market is extraordinarily attractive for the scale of the potential it still offers. Now that prices have come more or less into line with those elsewhere, there is less fear of further crashes, and the potential for volume growth remains enormous.The Japanese consumer is attracted by the concept of multimedia, and the current direction of technological development seems well matched to market needs. It is probably no exaggeration to say that Japan is currently one of the most exciting, and potentially lucrative, personal computer markets in the world.
