Finding a Niche in the Japanese Market
An interview with Hiroo Satake, president of Itochu Techno-Science Corporation (CTC)
CTC's president, Hiroo Satake
interviewed by Terrie Lloyd
After graduating from Meiji University in 1952, Hiroo Satake went to work for NCR Japan. He joined Itochu Corporation in 1971, and C. Itoh Data Systems Co. in 1972. From 1986, Satake successively served as
managing director, senior managing director, and vice president of Itochu Techno-Science Corporation, before becoming president in June 1994.
Itochu Techno-Science Corporation (CTC),established in 1972, isheadquartered inSetagaya-ku, Tokyo.With over 1,600employees and annualsales of over ¥100 billion,the company is active inthe development ofall types of softwareand application systems,as well as the import,sales, leasing, and rentalof computers andapplication systems.
First, tell us a bit about CTC.
Hiroo Satake: CTC was established in 1972; we will have our 25th anniversary next year. There are now about 1,500 employees in the CTC group. In 1995, we achieved ¥100 billion in sales, and our target is to have ¥200 billion in sales in 2000.
And what are your main products?
Satake: We deal with computer hardware and software, 90% of which is imported from the US. Our initial objective was to introduce high-quality US computer products to Japan.
In the US, computer technologies are said to be ten years ahead of Japan. We place our focus not on the mainframe market, but on other fields -- niche markets that have not yet grown in Japan. This strategy has turned out to be successful.
Can you give us some examples?
Satake: We originally introduced to the Japanese market an American product for data input, "key-to-disk," back when people in Japan were still using a card punch for data input. Since card punch systems cost so much and were inefficient, the "key-to-disk" product was well received here. We sold about 10,000 units in total.
That is just one example of the way we have been trying to develop computer market segments in Japan. We introduce specific hardware and software solutions for particular demands here.
And things took off from there?
Satake: Yes. Back in the '70s, we introduced Wang's distributed computer systems to Japan. We first marketed Wang programmable calculators for scientific uses, and then started introducing Wang word processors to the export-related business fields, including the foreign exchange section of financial institutions.
Those products were designed for creating documents in English, so we didn't expect the market for them to be very big. Thanks to the growth of exports from Japan at that time, however, the demand for the documentation in English grew. So those types of products, such as packages for making operation manuals and specifications of export products, sold well.
I understand that you had the foresight to move very early into the workstation market.
Satake: Yes, 1982 was a turning point. In that year, I met Bill Joy, one of the founders of Sun Microsystems, who was about to set up the UNIX workstation business. At that time, hardware makers -- particularly mainframe makers -- were dominant in the computer market. They had their own closed operating systems, and these were hindering growth of the computer market as a whole.
Bill told me then that the dominance of mainframes would end within a decade. Instead, he said, servers and workstations with high quality and reasonable price would appear on the market. He also claimed that software development under an "open environment" would be much needed in the future, rather than development of hardware and OS, and that he would make a concerted effort to create an open environment for the UNIX machines.
Given the state of Japanese computing at the time, that must have seemed like an outrageous prediction.
Satake: Yes, to be honest, it was hard for me to believe such a scenario at first, since mainframe makers like IBM were so powerful then. But he was very convincing, and such a viewpoint was attractive for me. I could easily understand his enthusiasm for making a new hardware concept for open systems. I decided to cooperate with Sun Microsystems just three months after the meeting with Bill, and now we have been dealing with Sun Microsystems for over a dozen years.
CTC was a leader in the client/server systems development with Sybase products. What made you decide on Sybase?
Satake: Four or five years ago, client/server systems, with open architecture and networking, were just starting to become popular in Japan. At that time, we decided to go with Sybase products because we thought Sybase offered a key factor for client/server systems: that is, distributed relational database systems. Sybase products allow us to configure distributed systems at a tenth or even a twentieth of the price of conventional mainframe systems.
I understand, though, that you had a very tough time for the initial two or three years in meeting customer expectations.
Satake: For the initial few years, we faced difficulty in the market segmentation of client/server products in Japan. After a lot of trial and error, we realized that we needed system engineers who know the particular applications required for each market segment, in order to make the best system configuration for the segment. That is why we have established subsidiaries in the CTC Group for such market segments as finance, pharmaceuticals, computer supplies and peripheral supplies, and others.
Usually, in the US, when a company specializes in client/server software or client/server solutions, they headhunt a senior operations manager to work with programmers and analysts. How about CTC?
Satake: No. Basically, in Japan good people don't move around between companies much. In CTC, it's difficult to bring in people from outside, as is the case for other Japanese companies.
But I heard you are looking for experts outside Japan, such as from India.
Satake: Yes, we have been looking for talented software development engineers. Many Indian computer engineers, for example, have advanced knowledge of information and telecommunications technologies. They also have pretty good skills for UNIX and open systems; those systems are popular in India, mainly because the import of mainframes was not allowed there.
We have been seeking computer engineers from India because we highly evaluate their technology level -- not only because of their lower wages. They work hard, and they complete projects within the specified time. Japanese software houses, on the other hand, tend to be always behind schedule. And there is virtually no education or training available in Japan for configuration of generic client/server systems.
Some other Japanese companies have faced communications problems when they have tried to employ engineers from China or India. How do you cope with the language barrier?
Satake: In the case of Chinese engineers, it is true that the language barrier is high. But, in the case of the engineers from India, the barrier is relatively low, since they speak fluent English. The computer terms being used in Japan are mostly English, including the programming development languages, so communication between computer engineers in English is not a serious problem.
Also, the foreign engineers working here often learn Japanese very good at the job site. But since some Japanese companies find it difficult to deal with foreigners on detailed business issues, we only ask our foreign engineers to participate in the bigger projects, such as the ones with development costs of ¥500 to ¥1,000 billion. So far, we have been successful in all such projects.
Moving on, how about your prospects for the Internet business?
Satake: The Internet? Wow, this has a huge market here -- huge. One of our advantages is that Sun Microsystems is very famous for its Internet server. Probably they have a nearly 60% share of the Japanese Internet server market, and nearly 60% globally.
Sun Microsystems has developed a new scripting language called "Hot Java." Are you doing any Japanese language development for that kind of thing?
Satake: Yes, we have been working with Sun Microsystems for that purpose. It's a good leverage, since we are distributing Sun Microsystems products at the rate of about 20,000 units per year. We handle about 30% of the total shipments of Sun Microsystems products in Japan.
In the past, large companies in Japan usually have had their own travel agency, insurance company, etc. to provide services to their employees. But if everyone had Internet e-mail access, they could use partners who do the Internet-based travel, insurance, and other businesses, and give a discount to their employees. And since those companies have to buy technologies for their Internet-based businesses, you could do partnering for those kinds of customers.
Satake: Exactly. We are making joint developments of application software for that purpose with other companies. One is BroadVision, which is middleware to manage electronic commerce over the Internet. This is a product of an American company. CTC is licensing the technology and reselling the product in Japan. We are the sole licensed reseller of this product at the moment.
Do you like exclusive resale agreements?
Satake: No, actually I don't. There is a huge market here, and we don't normally ask for an exclusive agreement for any software, except for ones that have an extremely small niche market, like molecular design.
In your opinion, who makes the best local software in Japan, besides JustSystem?
Satake: That's a very hard question to answer.
Why isn't there another software success like JustSystem, and its Ichitaro word processor, here? Why, for example, isn't anybody making big progress in databases? The Japanese use a lot of databases.
Satake: In my opinion, software products should be usable both in Japan and outside the country. No Japanese company, though, has developed their software for marketing worldwide. The available database software made here is all for the Japanese market only. And so their product volume is not large, since the market is limited.
It's like the case of TRON project. [Discussed in our January issue; see "The TRON Project, 1995," page 14.--Ed.] TRON attracted widespread attention in Japan at the beginning, but it has been having a hard time recently because it wasn't accepted worldwide.
Are there any areas of software in which you think Japan has a chance to become an exporter?
Satake: Perhaps Japan can be strong in the Internet and game software fields. For computer systems and business software, though, I don't think Japanese developers can be a major force.
Do you think there is still a good chance for foreign companies in Japan? Many people are saying that windows are closing, and Japanese companies have already taken the technologies they need. In what area can foreign companies succeed, if any?
Satake: There may be opportunities in the field of concurrent engineering, since it has been seriously studied in the US, but has not yet become popular in Japan. Japanese organizations have a very traditional, rigid hierarchy, and concurrent engineering is difficult to mix with such hierarchy at the moment. Once it starts spreading here, though, and it will, the demand will grow rapidly.
In fact, some top Japanese managers already say we need concurrent engineering. Once we clear the first step, I believe the existence of concurrent engineering can become very eventful for the Japanese computer manufacturers. Otherwise, we will fall behind the rest of the world.
