Foreign IT Business Success Stories

by John Boyd

25 years of assistance
Too corny to believe? You might change your mind if you met Totten and traced the progress of Ashisuto over its 25-year history. In the first 13 years of business, the company's after-tax profits averaged only 0.9% of revenues, despite steadily rising sales.

Totten arrived in Japan in August 1969 on a scouting mission for System Development Corp., a leading US software company specializing in custom-built software for defense systems and the aerospace industry. The company was interested in selling its services to Japan's aerospace industry and the country's budding defense organizations. Totten, however, saw much better opportunities for selling commercial packaged software to Japanese businesses.

"Japanese industry was using mainframes," Totten recalls, "but there was no packaged software. Everything was custom written." A costly way of doing business compared to the US, where the computer industry was coming up with generic packages. "And because there were no kanji systems here then - at best, some kana being used - I saw no problem selling American packaged software," says Totten.

"Japan is a very easy country to do business in, a very easy country for foreigners to do business in."

"All I did was run up a lot of expenses," admits Totten. "Packaged software was a new concept here, and difficult to sell." Feeling pressure from other directors in the company over his lack of success, he decided to quit, and this time go it alone. He tapped his parents and friends to invest in the new company. After raising JPY16 million, he established Ashisuto ("Assist" in English) in March 1972 with a handful of employees who followed him from System Kaihatsu.

During his time in Japan, Totten had been studying how the Japanese ran their businesses. "No economy had grown as fast as the Japanese economy did in the 1950s, '60s, and '70s. I wanted to learn how they did it." What Totten discovered was that a number of successful companies operated on principles quite contrary to those propounded in the US, where corporations exist specifically to make a profit.

By contrast, says Totten, Japanese business leaders like Matsushita and Honda were motivated by the twin goals of producing goods and services for society while providing jobs for people to enable them to buy the goods. "Profit for profit's sake was considered bad," says Totten (though he adds that, unfortunately, this is less true in the Japan of the 1990s). Four or five decades ago, companies were driven not to maximize profits, but rather to secure enough profit to ensure the future of the company. "The US way means only 1% of the population gains from the profits," Totten argues. "This way, 99% of the people gain."

Since that epiphany, Totten has run Ashisuto on the same principle of protecting jobs, not profits. He has refused numerous offers from securities companies to take Ashisuto public.

In the first year of business, his previous efforts at System Kaihatsu to market the new concept of packaged software for mainframes began to pay dividends. Ashisuto chalked up revenues for sales and bundled support services of JPY100 million. Five years further on, revenues had edged up to JPY160 million - not a spectacular figure, perhaps, but by then Totten had paid back all his debts, including JPY22 million in expenses he'd run up at System Kaihatsu in his endeavors to sell packaged software.

"In the sixth year, we really started growing. We began doubling revenues for a number of years in a row," says Totten. Revenues eventually hit JPY3 billion, then things slowed until another business upsurge in the 1980s steadily took them to JPY12 billion in sales. "That's when we had our crisis."

The crisis came at the end of the 1980s, when the Japanese economic bubble burst with a bang. At the same time, the computer industry had begun edging away from mainframe computing into open systems and client/server computing. With the economy under a crunch, and with change in the air, businesses abruptly cut back on their software purchases.

Once the paradigm shift to open systems built up steam, it inevitably caused enormous upheavals in the kinds of software that companies bought. From selling accounting systems, data analysis packages, and database management systems to corporate users of IBM Japan, Fujitsu, and Hitachi mainframes at JPY20 million a contract, Ashisuto found itself selling Unix database software from the likes of Oracle for about JPY2 million a pop.

[Japan's Internet market] "will end up with a few very large companies, and lots of tiny niche companies-and nothing in between."

While most of its competitors from the mainframe era met their demise, Ashisuto came through the crisis years relatively unscathed, although growth remained stagnant. Two years ago, sales began picking up again, and last year Ashisuto reached JPY19 billion in revenues.

Eclipsing the software market
If a sense of mission brought Totten to Japan, for Warren Muir, 41, representative director of Eclipse Computing, Ltd., it was pure serendipity that he arrived in Japan 14 years ago. With a background in systems software engineering and analysis, Muir was en route to the UK from his native Australia to begin a working holiday as a contract programmer. Japan was simply a stop-off on his way to discovering Europe.

But Muir found his skills were in demand here and, with a working-holiday visa, he soon began teaching statistical programming at a government-sponsored institute in Tokyo. Later, he moved to Hitachi Software, where he worked as a contract programmer for a time.

In 1986, Japan's financial markets were somewhat deregulated. Muir, along with Paul Waylett, a programmer friend from the UK, saw opportunities springing up for the grabbing. They incorporated Eclipse, and then negotiated the distribution rights to SunSystems, a sophisticated accounting and business package from Systems Union, a software vendor based in Hampshire, England.

"SunSystems offered a flexible design with international features like multicurrencies, and it was fairly easy to translate into foreign languages," says Muir. "Some of the accounting software out there only comes with the dollar sign." Consequently, although SunSystems is a UK product, only 40% of its revenues are generated in the UK market. The rest come from overseas sales.

Waylett's brother, Gary, who had been selling SunSystems and other accounting packages, came over from the UK to provide technical training for the Eclipse staff. Upon his return to the UK, he established an Eclipse subsidiary in London. Later, Paul Waylett went to the US to run a subsidiary in New York.

This put Eclipse in a position to provide support in the world's three major business markets. Today, the company has added subsidiaries in Singapore, Australia, and Thailand, and is negotiating with a Chinese company to establish a joint venture that will likely be located in Shanghai.

Once the accounting product was localized for Japanese users, Eclipse began offering it along with implementation and training services. "We're not just a reseller," Muir stresses. Some of the first customers included British financial companies opening up in Japan's newly deregulated markets, but Eclipse also scored successes in selling to Japanese companies going abroad. It now counts the likes of All Nippon Airways, Sony, and Mitsubishi Electric among its clients, as well as Pepsi and Hoyts Corporation.

"The appeal of SunSystems is that it's so scaleable," Muir explains. "It can run on a stand-alone PC, and you can scale up as your company grows. It's the only product [like this] in town."

One competing product is SAP, a high-end package from SAP AG, the German software vendor that has won worldwide recognition for its client/server software. SAP competes with SunSystems in the mid-range market. Muir says some companies run a two-tier accounting system based on both products.

As sales of SunSystems grew - over 500 packages sold in Japan to date, with a price tag ranging from JPY1 million to JPY20 million each - Eclipse wanted Systems Union to establish a presence in Japan. Such a move, it was felt, would emphasize its long-term commitment to the Japanese market. It so happened Systems Union was thinking along the same lines, so the two companies teamed up to create a 50:50 joint venture, which now has offices in the same building as Eclipse in Ichigaya, Tokyo. Today, Eclipse focuses more on international business, while the joint venture takes care of the domestic market.

Eclipse currently has 27 employees working in Japan. "And we're almost continually recruiting," says Muir. When you add in overseas staff, the total jumps to almost 100. Sales in the Asia-Pacific were just under $10 million last year, with about half of that coming from the Japanese market. "And we expect to double that figure in 18 months; that's our projection," says Muir.

A global Internet presence
Starting a software company like Eclipse doesn't necessarily take a lot of capital. You can pretty much get by with a computer, programming skills, and a good idea.

Starting an Internet service operation is quite a different matter. You need to purchase servers, PCs, modems, and software; provide technical support; and be in a position to purchase leased lines, ISDN (integrated systems digital network) lines, and any number of dial-up lines.

Global OnLine Japan's founder and vice chairman, Roger Boisvert, has a great deal of experience doing all this. He got into the business in 1993, when he was appointed to establish and head InterCon International KK (IIKK) a subsidiary of US-based InterCon International. Already active in the Internet business in the United States, InterCon brought Boisvert in just as the Net began to spark interest here to set up its Japanese operation and get government clearance to provide such services in Japan.

As a result, IIKK can stake claim to being the first Internet Service Provider (ISP) in Japan (although AT&T Jens makes a similar claim). IIKK provided the first fully commercial Internet access service in Japan when one of its customers, Tokyo-based online service TWICS, used IIKK's international connection to offer its users public dial-up Internet access in late 1993.

Before establishing IIKK, Canadian-born Boisvert, 45, spent eight years with McKinsey and Company, the international management consulting firm. He is also well known on the Tokyo personal computer scene from his stints as president of both the Tokyo PC Club and the International Computer Association.

Within days of establishing its Internet connectivity, IIKK began to be approached by companies wishing to make an investment. Just a few months after forming IIKK, InterCon International founder Kurt Baumann accepted an offer from another US-based ISP, PSINet, which subsumed the Japanese operation into its own business.

This meant that Boisvert was out of a job - but not out of ideas. Having wanted to be his own boss since his early teens, and now with experience in establishing a company for someone else, he decided to create one for himself. So he founded Global OnLine Japan (GOL) in June 1994. [For the record, GOL is a regular advertiser in Computing Japan, and the author is a paying user of its services.-Ed.]

"I began by setting up an 8-line system in my home," says Boisvert. "Then, in September 1994, I opened an office with four employees. I did all this using my own funds, my entire life savings."

But in order to expand, and to purchase leased lines and all the equipment required to grow an ISP, Boisvert needed to find investors. Fast. "I was running out of money!" he remembers.

The venture capitalists and established corporations he approached wanted to see "a five-year history, and a five-year forecast," says Boisvert. But this was still 1994, and no five-year history existed, though the future looked bright.

"In the end, I turned to individuals," says Boisvert. "Getting funding from companies can take months and months. Securing funding from individuals can be done quickly."

Then he learned something about "good money, and bad money." Good money, he explains, can be used as the entrepreneur best sees fit. "Bad money comes with a lot of negative control, where [the investor] is continually interfering. And that's not what you need when you're trying to build a new company. It's important, then, not only to get investments; you have to make sure you get the right kind of investments."

The interference that accompanied the "bad money" caused any number of headaches, and subsequently led Boisvert to raise additional funds to buy out the more troublesome investors. "Surprisingly, I found that a number of investors were more interested in learning about the business aspects of the Internet than getting a direct return on their initial investment," says Boisvert.

Now, two years later, GOL has 32 employees. They attend to over 8,000 individual users, plus 300 corporations (including several telecommunications companies, NTT Multimedia, Japan Railway Systems, and TUV, the Germany-based Industry Standards organization). By Boisvert's own estimation, in terms of ISP size, GOL ranks "number ten or eleven, behind NTT, KDD, Fujitsu, and some other of the largest companies in the world." That sounds impressive when you consider there may be as many as 1,500 competing ISPs in the market, but Boisvert understands the industry is heading for a shakeout.

"Eleventh is not good enough. We've been profitable since our eighth month, but we need to grow more. We need to get into the top six or eight [to survive long term]." This is not just for growth's sake, says Boisvert, but because there's going to be "a big hollowing out of this business. [The market] will end up with a few very large companies, and lots of tiny niche companies - and nothing in between."

To grow, GOL is introducing a rack of new Internet services. "We've missed signing on customers in the past because they wanted their ISP to provide services like Web and systems development, and network design for the Internet. GOL didn't offer this in the past. That will change in April '97," said Boisvert.

A fusion of expertise
One company already making a successful business out of high-end systems development and systems integration is Fusion Systems Japan (FSJ), based in Naka-Meguro, Tokyo. FSJ was established in June 1992 by its founder, Michael Alfant, who began as its first and only employee. Today, FSJ employs 75 staff, all but five of them engineers. It competes with the likes of Andersen Consulting, Nomura Research Institute, and Price Waterhouse in the big league of supplying computer services to multinational businesses.

"There were a lot of technology needs not getting met in the multinationals here."

So Alfant started Fusion, and soon hired four other engineers to help him. "We managed to bootstrap ourselves without external financing," he says. "There was always a Visa card to fall back on!"

Nevertheless, if he had to do it all over again, Alfant says he would "strongly consider taking advantage of financing, because you get to sleep at night. And because it leaves you free to concentrate on your core business, rather than worrying about financial details from the start."

"Build it and they will come" was Alfant's expectation, and so far he hasn't been disappointed. "There was a large demand from the beginning. Finding customers has never been a problem."

The company is divided into three divisions, focusing on financial services, commercial systems, and client/server work, including local area and wide area networking (LANs and WANs). But FSJ is not big enough to go it alone when it comes to handling the disparate technology needs of Fortune 1,000 multinationals, so it relies heavily on partners like Compaq, Informix, British Telecom, and Sun Microsystems. However, Alfant stresses that the company is not a reseller for any of these companies. "We even compete with them at times," he adds.

If finding customers isn't a problem, finding the right kind of experienced engineers is. "It's difficult to hire quality technical people; they're in demand," says Alfant. This was especially true when Fusion was just getting on its feet. "As a small company, it was difficult to attract people from Canada or Silicon Valley, but our growth has changed that now."

Like Ashisuto, Fusion remains a private company, and Alfant says every employee owns shares in the company, or has stock options. However, unlike Ashisuto's emphasis on secure employment, "We're here to create wealth for the employees," stresses Alfant.

Besides offering stock options, Fusion spends heavily on training and related materials. "About 11% of our revenues, actually," says Alfant. This is necessary, he explains, when you deal in fast-moving technologies like Java, object- oriented programming, Unix, Windows NT, and the Internet.

The company runs on flexi-time, dress is casual, and Friday night beer parties help keep spirits high. According to Alfant, it's all working out as planned, which explains why so many of the original engineers who signed on with Fusion remain with the company. The fact that Alfant says revenues are expected to grow 100% per year for the foreseeable future doubtlessly also helps keep stockholding staff happy.

Over the next 12 months, FSJ expects to add another 25 employees. This plan to expand the employee base has led to the decision to move to larger offices, closer to Naka-Meguro Station. The new location has four times the space of the present location. Alfant says he has already budgeted JPY155 million to take care of the move and the state-of-the-art technology the company will re-equip itself with.

Are there no dark clouds on the horizon? Alfant can't see any. "We don't see any new competition popping up. Even if client/server collapsed tomorrow, we'd still be in business. Even if the Japanese economy stays depressed, we will still be here. The multinational companies we're dealing with are implementing [technology] on a global scale, so some of that business will be in Tokyo."

I quoted Ashisuto's Bill Totten at the beginning of this article as saying Japan is "a very easy country for foreigners to do business in." While that depends on what kind of business you are in, and how you go about conducting it, judging from these four quite-different successful IT companies, Totten doesn't appear to be overstating the situation.

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